This week’s pick is one of twelve Dividend Kings from the Consumer Staples sector. But of those twelve, only one other is trading below fair value and that’s Target [TGT]. As much as I love Target, especially at their current price, I am going with one that pays a massive 8.2% yield, highest amongst all Dividend Kings. In fact, on August 25, 2022, they announced their 57th dividend increase in the last 53 years. We want to remain defensive in this market, and this stock’s earnings were unphased in our last two recessions, climbing steadily year after year.
Monday morning, Altria Group Inc [MO] joins the Dividend King portfolio.
Altria Group Inc
Maybe there’s a good story behind that terrible logo.
Here is the profile from Yahoo! Finance:
Altria Group, Inc., through its subsidiaries, manufactures and sells smokeable and oral tobacco products in the United States. The company provides cigarettes primarily under the Marlboro brand; cigars and pipe tobacco principally under the Black & Mild brand; and moist smokeless tobacco products under the Copenhagen, Skoal, Red Seal, and Husky brands, as well as provides on! oral nicotine pouches. It sells its tobacco products primarily to wholesalers, including distributors; and large retail organizations, such as chain stores. Altria Group, Inc. was founded in 1822 and is headquartered in Richmond, Virginia.
They have a very complex history, but the roots of the company we have today started 200 years ago with a tobacco shop in Pittsburgh. The tobacco industry is in secular decline; cigarette smoking volumes drop each year. Altria keeps finding ways to grow their revenue and profit. They’re not perfect, but they are doing what a well-managed company does when their industry is not offering the growth they need. They’re raising prices, cutting costs, increasing margin, making acquisitions, and expanding into other areas.
The Details
Data as of 2022-08-27
| Name | Altria Group Inc |
| Ticker | MO |
| Website | Investor Relations |
| Sector | Consumer Staples |
| Dividend Streak | 53 years |
| Last Price | $45.88 |
| Div Amt (quarterly) | $0.94 |
| Ann Dividend | $3.76 |
| Last Ann Div Inc | 4.6% |
| Dividend Yield | 8.2% |
| Payout Ratio (ttm) | 76.8% |
| Beta (5-yr, mon) | 0.63 |
| P/E Ratio (ttm) | 9.8 |
| Margin of Safety | 19.9% |
Quite often, there is trepidation over buying a stock with a dividend yield as high as 8%, and justifiably so. There is always the potential for a dividend trap. Except under special circumstances, 8% yields are unsustainable. Either the company irons out its issues and the price increases, significantly shrinking the yield, or the company cuts or suspends their dividend.
But we’re talking about a company with a 200-year history and a 53-year streak of delivering increasing dividends. Lest you feel that this 8.2% dividend is a problem for Altria, allow me to point out that it is under their target payout ratio. From their most recent press release:
Today’s dividend increase reflects our intention to return a large amount of cash to shareholders in the form of dividends and is consistent with our long-term objective of a dividend payout ratio target of approximately 80% of our adjusted diluted earnings per share.
Altria has lost over $12 billion over the last three years on their acquisition of Cronos and Juul. Their stock has been beaten down accordingly. But there’s another way to look at it. The worst of those ventures is behind them, and those losses haven’t stopped the earnings from growing each year.
Further, the 10-year average of the P/E Ratio through 2021 is 15.44 and Altria is under 10. Now, I won’t go so far as to say there’s 50% margin of safety here, but I do think there’s plenty of upside potential.
I’m going to purchase 22 shares of Altria on Monday morning. In the meantime, smoke ’em if you got ’em.