I wouldn’t bet against Altria Group (MO); if you’re an income investor, you might consider viewing this stock more favorably, suggests Stephen Mauzy, editor of Personal Wealth Advisor.
The maker of Marlboro cigarettes recently increased its dividend. This marks the 51st consecutive year the dividend has been increased. The quarterly dividend will be $0.86 per share ($3.44 annually) going forward. The dividend increase lifts the forward dividend yield to 8%.
Cigarette smoking in the United States trends lower. What’s more, smoking has trended lower for the past 25 years. The trend appears to have slowed during the pandemic.
Fewer people have been motivated to quit. Altria recently revised its 2020 full-year cigarette industry adjusted volume decline rate from its previous range of 4%-to-6% to 2%-to-3.5%.
Altria has a long history of doing more with less. Cigarettes might be the most price-inelastic good on the market. Price increases can more than offset volume declines. Because of price-elasticity, Altria continually grows revenue and earnings despite the volume declines.
Higher cigarette prices enabled Altria to grow revenue through the first half of the year. The company reported revenue increased 5.5% to $10.108 billion through the first six months of 2020. EPS through the first half of the year increased 8.5%.
Let’s keep in mind that Altria is more than cigarettes. It is also the largest smokeless-tobacco maker. It owns lead brands Copenhagen and Skoal. The segment’s volume increased 2.8%.
Altria is also invested in less harmful nicotine delivery products. It plans to ramp up smokeless IQOS distribution in the United States. When considering the massive success IQOS has had in international markets, the outlook is promising.
Altria owns an 80% interest in Helix Innovations, a manufacturer of On! nicotine pouches (oral intake). Helix expects that it will reach annualized manufacturing capacity of 50 million On! cans by the end of this year. The number of stores carrying On! surged 43% sequentially to 40,000 stores at the end of the second quarter.
Altria has exposure to cannabis. It holds a 45% equity stake in Cronos Group (CRON). It leads the vaping market with its 35% equity stake in JUUL labs, the largest seller of nicotine vaping products.
Altria holds a 10% stake in Anheuser-Busch InBev (BUD), the largest brewer in the world. Altria’s Anheuser-Busch InBev investment is valued at $11 billion.
I’ll concede that Altria isn’t for everyone. The objections are obvious, and so are the hazards. But the fact is people smoke, and they’ll continue to smoke. If you have no moral objections to tobacco, you have should no financial objections to an Altria investment.
