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Top Picks 2020: Altria Group (MO)
01/24/2020 5:00 am EST
Altria Group (MO) is a consumer staples manufacturer; it built its historical growth on its flagship Marlboro cigarette brand, but in recent years has diversified itself beyond tobacco, explains Ben Reynolds, editor of Sure Retirement.
It also has non-smokable brands, such as Skoal and Copenhagen chewing tobacco, Ste. Michelle wine, and it owns a 10% investment stake in global beer giant Anheuser Busch Inbev (BUD). Altria has made these investments to adapt to changing consumer habits, specifically the declining smoking rate.
Altria expects smoking volumes to decline 5% to 6% this year and continue at a 4% to 6% annual decline through 2023.
As its smokable products segment still represents over 80% of its operating profit, the company needs to branch out into new areas. It has made huge moves into two specific categories—vaping and marijuana—which should fuel the company’s future growth.
Altria recently announced a $1.8 billion investment for 45% of Canadian marijuana producer Cronos Group (CRON). It has also invested nearly $13 billion in e-vapor manufacturer Juul Labs for a 35% equity stake in the company.
And in June, Altria invested $372 million for an 80% stake in Burger Söhne, a Swiss company that makes oral nicotine pouches. These investments into adjacent categories are designed to take leadership positions in new areas of growth, and to protect its cash flow from further declines in smoking.
We believe Altria has a highly secure dividend. The company targets a dividend payout ratio of 80% of its adjusted earnings per share. Altria has increased its dividend for 50 years in a row, qualifying it as a Dividend King. The stock has a current yield of 6.5%, which is very attractive for income investors.
Altria is also a very appealing stock in the event of a recession. Sales of tobacco products hold up very well in recessions.
Altria’s products enjoy tremendous brand loyalty, as Marlboro controls more than 40% of the U.S. retail market share. Investors expecting a recession in the next few years would continue to see their dividend income rise with Altria stock.
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