Altria Group (MO) is the largest U.S. domestic cigarette maker and one of the largest in the world; in addition to cigarettes, Altria also sells e-cigarettes, marijuana, beer, wine, and smokeless products, explains Tom Hutchinson, editor of Cabot Dividend Investor.
Altria also owns a 10.2% stake in the world’s largest brewer Anheuser-Busch InBev (BUD). And in late 2018, Altria purchased a 45% stake in Canadian cannabis company Cronos (CRON) for $1.8 billion.
Legal cannabis is a huge growth industry still in its infancy. But the growth is undeniable. The trend toward legalization is clear and could accelerate as states opt for additional tax revenue to compensate for the budget shortfalls from this recession.
Altria, with its unparalleled regulatory expertise, deep pockets and marketing should be able to cash in on some of that growth going forward.
In the meantime, the company continues to grow earnings per share. Management is forecasting high single digit annual growth for the next several years. Earnings grew over 18% in the first quarter as people are smoking more during the pandemic.
Is that massive dividend yield safe? I think it is rock solid. The company has a rather high 80% payout ratio, but that is the historical average. And the company has raised the payout every year for the last 50 years.
Historically, this has been one of the best and most reliable dividend paying companies on the market because the company generates an obscene amount of free cash flow, money left over after expenses. To give you an idea, in 2019 Altria generated $7.6 billion in free cash flow and paid $6.1 billion in dividends.
This is one of those companies that is actually doing better during this recession as people tend to smoke more. It can offset volume declines with price hikes and share buybacks.
But it also has some promising growth prospects for the longer term. Meanwhile, that big fat dividend should be safe, and the stock is priced near a five-year low.
