A Smokin' Hot Stock

06/06/2013 9:45 am EST

Focus: STOCKS

Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

Sin stock or not, this company is a perennial growth winner, says Ian Wyatt of High Yield Wealth.

It's easy to overlook Altria (MO) when it isn't being attacked by government or inundated with a new spate of lawsuits. Fortunately, things have been pretty quiet for the maker of Marlboro cigarettes during the past year.

When I first recommended Altria in September 2011, I mentioned how it historically produced a 20% average return annually. I also mentioned that Altria has been the top performer in the S&P 500 dating back to the late 1950s.

Altria's long-run performance is really remarkable. Its No. 1 product, cigarettes, is in a constricting market. Cigarette consumption has nearly halved over the past 30 years, and yet Altria is able to produce revenue growth on par with the annual inflation rate. Strong pricing power and the addition of growth tobacco niches Copenhagen, Skoal, and Black & Mild brands keeps the trajectory going.

In short, Altria is a very ably managed company that consistently keeps the needle moving forward. Dividends and earnings per share grow 7% to 9% annually.

The thing is, the needle keeps moving—but without much fanfare—which is why I was mildly surprised to receive a notice recently that Altria shares hit another multi-year high.

Looking at the High Yield Wealth portfolio, I noticed that Altria has returned 48% since my initial recommendation. That works out to more than 20% annually. As improbable as it seems, Altria continues to grind out its 20% return annual magic.

I suppose it really isn't all that improbable, when you consider how well Altria is managed. The company posted strong first-quarter gross profits, which surged 21.5% to $2.7 billion compared with the prior-year quarter. Its operating income shot up 30.3% year over year to $2.2 billion on the back of disciplined cost-saving initiatives under Altria's cost-reduction program.

Here's Altria's value proposition in a nutshell: Pricing power, effective cost-saving initiatives, a lower share count owing to a continual share-buyback program, 40 years of annual dividend increases, exceptional management, and years of 20% average annual return.

With all that said, I see no reason not to continue recommending Altria shares.

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