Today we conclude our special 5-part series from Bob Ciura, contributing editor of Sure Dividend, highlighting the 5 highest-yielding Dividend Kings — a select group of 39 stocks that have increased dividends for over 50 years.
Read Part 1 here…
Read Part 2 here…
Read Part 3 here…
Read Part 4 here…
Tobacco giant Altria Group (MO) is the highest-yielding Dividend King. Altria is operating in a declining industry. Cigarette sales have steadily declined in the U.S. over the past few decades. But Altria has maintained a high level of profitability and cash flow, thanks to steady price increases and lower capital expenditures. Altria’s 7% dividend yield and consistent dividend increases make it an attractive stock for income investors.
Business Overview & Growth Prospects
Altria Group was founded in 1847. Today, it is a consumer staples giant. It sells the Marlboro cigarette brand in the United States. It also manufactures non-smokeable brands, including Skoal and Copenhagen. Altria also has a 10% ownership stake in global beer giant Anheuser Busch InBev (BUD).
As is typical of many tobacco companies, Altria continues to post steady growth. In the 2021 fourth quarter, smokeable product revenue increased by 2.3% year-over-year. Overall net revenue decreased 0.8% to $6.3 billion due to lower wine revenue. However, Altria grew its adjusted earnings-per-share by 10% due to expense controls and share repurchases. The company repurchased 15.5 million shares at an average price of $45.40 totaling $703 million.
For 2022, Altria expects to generate full-year diluted EPS guidance to $4.79 to $4.93. This means 2022 will be another highly profitable year for the company, which will fuel its dividends.
Altria is exploring multiple avenues for future growth, outside of tobacco. The company owns large equity stakes in Juul, a vaping products manufacturer and distributor, as well as cannabis company Cronos Group (CRON). Diversifying into new product categories could help jump-start Altria’s growth.
Competitive Advantages
Altria’s long history of dividend growth has a lot to do with its competitive advantages, which are primarily its brand strength and economies of scale. Its flagship Marlboro brand commands over 40% retail market share in the United States. This provides Altria with a great deal of pricing power, which results in a steady revenue growth rate.
At the same time, Altria can keep its expenses low, resulting in high profit margins and cash flow. Altria uses a significant portion of its cash flow to buy back shares, which is an additional boost to earnings-per-share growth.
This is how Altria can continue to raise its dividend each year, even while the broader industry struggles. Altria also has a clear dividend policy, which is to distribute 80% of its adjusted earnings-per-share each year in the form of dividends. This gives investors a clearer view of what future dividend raises will be. Overall, Altria is an attractive Dividend King, due to its 7% yield and annual increases.
