Is An Altria Dividend Cut On The Minds Of Investors?
Let’s put the big Altria dividend under review today with a thorough Altria stock analysis.
But before we get into the details, I want to address several key money management questions. Questions that are on the minds of current and potential Altria investors.
I will go from the most short term, more pressing questions. To the longer-term, bigger picture ones.
Is The Altria Dividend Safe?
The Altria stock dividend appears safe.
It consumes just 80% of the company’s free cash flow. And that cash is supported by a consistent and proven business model. Also, Altria projects profitable growth of 4%-7% annually over the next 2-3 years.
Is Altria Stock A Good Buy?
Altria stock looks to be a good buy at recent prices.
A variety of stock valuation methods show Altria stock trading below its fair value. Also known as intrinsic value.
In addition, the stock’s low price-to-earnings ratio clearly accounts for the company’s slow growth prospects.
Is Altria A Good Long-Term Investment?
Altria’s long-term investment prospects are closely tied to its transition to reduced-risk products. If, as an investor, you believe the company will successfully make this transition, then yes. Altria is a good long-term investment for current income, future income growth, and share price appreciation.
Is Altria A Good Dividend Stock?
Altria is an excellent dividend stock. The stock has a generous dividend per share with a high dividend yield.
Each year management increases the Altria dividend. And, in 2019, Altria became a Dividend King, with 50 consecutive years of dividend increases.
Altria Stock Analysis & Dividend Review
Perhaps, these are important questions for you too? So, stick around and dig into the details that support my answers. To confirm that Altria is still a good dividend stock pick.
No further delay. Let’s move into the Altria dividend stock analysis right now. Certainly, I will have additional thoughts on Altria dividend safety, dividend growth, and much more.
Before you leave, don’t forget to check out all of our dividend investing and dividend stock articles. Because dividends are a great way to earn a growing stream of passive income to build YOUR wealth!
Disclosure: This post contains referral links.
What Does Altria Do?
When managing your money, it always pays to know what a company does to make a profit. So, for the record, Altria has been a market leader in the U.S. tobacco industry for decades.
Furthermore, their brand names include:
- Philip Morris USA – the maker of Marlboro cigarettes
- U.S. Smokeless Tobacco Company – the maker of Copenhagen and Skoal
- John Middleton – manufacturer of Black & Mild cigars
- Nat Sherman – a premium cigarette and cigar business
Reduced Risk & Tobacco Product Alternatives
However, Altria’s goal is to be the U.S. leader in authorized, non-combustible, reduced-risk products.
To do this, they have been concentrating on three alternative product platforms:
- Smokeless and other oral nicotine products
- Heat-not-burn tobacco products
Altria is trying to convert traditional smokers to these product lines.
Because they offer reduced health risks and less social friction associated with cigarettes. Even more, they may provide a business that is sustainable in the future.
Altria’s product platform is complemented by:
- Ste. Michelle Wine, a collection of distinctive wine estates
- A strategic investment in Anheuser-Busch InBev – the world’s largest brewer
- Ownership interest in a leading global cannabinoid company – Cronos Group
Because of the significance of these business areas, Altria is no longer a pure-play in the tobacco industry.
Source: About Altria At A Glance
And with business lines and investments reaching into beer, wine, cigarettes, and cannabis, Altria is the ultimate “sin stock”.
Getting Back Together With Philip Morris?
Finally, Altria was considering a merger of equals with its former partner and international counterpart Philip Morris.
The 2 companies split in 2008 primarily to isolate the international businesses from tobacco-related litigation risks in the United States.
It is thought that the 2 companies together would benefit from joint efforts to market, sell, and distribute reduced risk products worldwide. Rather than trying to go alone.
Okay, not so fast on the merger.
Shortly after Altria and Philip Morris made the public announcement about merger talks, investor pushback emerged. So, a merger is no longer being considered.
But I suspect these merger talks will surface again sometime in the future. But, enough about the company. And their business dealings.
Let’s dig into the important stuff within today’s Altria stock analysis. All the facts and figures about the Altria dividend.
Altria Dividend Payout
On a forward basis, the annual Altria dividend rate per share is $3.44.
Altria Dividend Yield
This gives us an 8.7% Altria dividend yield at the recent Altria stock price. Certainly, this is a high dividend yield.
Furthermore, Altria’s dividend yield does raise a red flag about dividend risk. But, we will get to dividend safety in a moment.
I normally target dividend stocks in my portfolio with yields between 3 and 5%. Sure, I make exceptions. And Altria is one of those exceptions since I have owned the stock for many years.
Next, more facts about Altria’s dividend.
Altria Dividend Schedule
We know why Altria pays dividends. To reward shareholders with cash. So, let’s address how often and when Altria dividends are paid.
How Often Does Altria Pay Dividends?
Altria pays dividends every 3 months or 4 times per year. Each quarterly dividend payment is 86 cents per share.
When Does Altria Pay Dividends?
As a shareholder, you will receive dividend payments from Altria in the same months each year. Those months are January, April, July, and October.
Altria Ex-Dividend Date
To receive the next Altria dividend payment, you must complete your purchase by the ex-dividend date. Altria’s ex-dividend date falls in the month PRIOR to when it pays dividends.
For the April, July, and October dividend payouts, the ex-dividend date falls around the middle of the month prior. On the other hand, for January’s dividend payout, the ex-dividend date falls right before the Christmas holiday.
The ex-dividend date is slightly different each quarter. So, it’s best to check Altria’s dividend information on its investor relations website. You can get the exact date for each dividend payment there.
Once you buy and hold Altria stock, there is nothing more to worry about. You will receive your share of dividends each time Altria approves the next payout for its shareholders.
Altria Dividend History
I would describe the Altria dividend history as elite. I’m not positive, but the best I can tell from my research, Altria started paying regular and recurring cash dividends in 1962.
But I know this for a fact. The last dividend increase marked the 55th dividend increase in the past 51 years.
Altria Is A Dividend King
Their streak of 51 consecutive years of rising dividend payments qualifies Altria as a Dividend King. Dividend Kings are rare and special companies indeed.
It’s tough to qualify for this elite status. To do so, a company must have increased dividend payouts for at least 50 consecutive years.
So, we know Altria has increased its dividend for many years in a row. It can not be denied that this is a great achievement in the company’s dividend history.
But what does the dividend growth rate look like? Let’s look at Altria’s dividend growth rate next.
Altria Dividend Growth Rate
Altria’s dividend growth has been very strong for most of the 2010’s decade. But slowing in more recent years. The table below shows this strong growth through 2019.
Table 1: Altria Compound Annual Dividend Growth Rate Through 2019
|1 Year||3 Years||5 Years||7 Years|
2018, in particular was a very strong year.
Multiple Altria Dividend Increases in 2018
In 2018, we received 2 Altria dividend increases! 6.1% in March. And another 14.3% Altria dividend increase in August.
Certainly, these were the good times for dividend growth stock investors that owned Altria shares. On the other hand, dividend growth is clearly slowing.
2019 Altria Dividend Increase
The pace of Altria dividend growth slowed in 2019. Management announced a 5% increase.
But the 2019 dividend increase was an important one. That’s the increase that qualified Altria as a Dividend King.
2020 Altria Dividend Increase
Finally, the 2020 dividend increase announcement showed a further slowing of growth. It was just 2.4%
Altria Dividend Policy
The company clearly states its dividend policy. On the dividend information page shown on its investor relations website, you will find this statement:
“Altria Group’s target dividend payout ratio is approximately 80 percent of adjusted earnings per share.“
There are a few things I like about this statement. Plus from what I read in the company’s recent press releases announcing their dividend increases.
What I see is this:
- A company proud of its heritage of consistent dividend growth
- Clear objectives for future dividend payments based on financial performance
- A company that delivers on the dividend growth objectives they have set forth
That completes our Altria dividend review. Let’s move on to business fundamentals, earnings, cash, and dividend payout ratios.
Altria Revenue Trend
As one might expect, Altria’s revenue has been stagnant for years. It has hovered around $25 billion.
Chart 1: Altria 7 Year Annual Revenue Trend
Digging below the top line revenue number, the declining tobacco volume is being offset by higher prices. This is clearly not a sound long term revenue strategy.
But in the short term, exchanging lower volume for higher prices is very beneficial to profit margins. In contrast, meaningful revenue growth in the future will be reliant on the newer, alternative product delivery platforms.
Altria Dividend Payout Ratio Based On Earnings
Note that in the chart below, earnings have been normalized for:
- 2016: gain from the Anheuser Busch InBev business combination
- 2017: one-time tax benefits from the tax cut and jobs act
- 2019: loss from the write off of Altria’s investment in JUUL
Chart 2: Earnings And Altria’s Dividend Payout
And a word on JUUL. Altria’s investment opportunity in JUUL has been a clear bust.
Altria made a $12.8 billion investment in the maker of electronic cigarettes in 2018. Then, had to write off $8.6 billion of the investment in 2019 mainly due to litigation against the company.
First of all, Chart 2 shows that after taking into account the adjustments noted, over the long-term, their earnings have grown consistently.
Furthermore, earnings growth is primarily due to tobacco product price increases and cost reductions.
Finally, Altria projects compounded annual adjusted diluted EPS growth of 4% to 7% for the years through 2022.
The dividend looks adequately covered by earnings. But, there are too many accounting adjustments for my liking.
This is why Altria defines its dividend payout ratio target differently. They use “adjusted earnings per share”.
By taking out noncash accounting adjustments, this earnings metric more closely resembles cash flow. So let’s look at cash flow in relation to Altria’s dividend.
Cash flow will rarely mislead us. It will tell us a lot about Altria’s dividend safety.
Because a company is either making cash or it is not. No adjustments are required. Strong cash flow is a clear indicator of success for us dividend investors.
And our dividends are paid from cash. Not accounting earnings.
Altria Dividend Payout Ratio Based On Free Cash Flow
As shown in chart 3, dividend payments have consumed 80% of free cash flow over the past 3 years.
Chart 3: Altria Dividend Payout Ratio Based On Cash
Historically, Altria has allocated the remainder of its free cash flow to share repurchases. I’d like to have that extra cash used for debt reduction moving forward.
Altria has used more financial leverage in recent years. More on the balance sheet in a moment.
First, let me lay out my thoughts about where dividend growth fits into the investing puzzle next.
Projected Altria Dividend Growth
It’s fairly easy to come up with an Altria dividend growth forecast. At least for the next couple of years.
First of all Altria targets to pay 80% of adjusted earnings per share in dividends. Furthermore, it looks like they are currently operating right on that target. Finally, the company expects adjusted earnings to grow 4%-7% annually through 2022.
What does all of that mean? Based on the company’s statements, we should expect 4%-7% annual dividend growth through 2022.
But for the longer term, I’m going to be more conservative than that. And use a 2% dividend growth rate for future years. You will note that this is significantly less than the historical trend. And less than the company’s assertions through 2022.
My belief is Altria will be able to successfully navigate the rapidly changing tobacco industry landscape. Price increases, cost reductions, and shifts to new products will offset declines in cigarette consumption over time.
However, excess cash may need to be diverted away from dividend growth for investment opportunities in new product initiatives. And for debt reduction.
These factors will allow Altria to continue growing profits and the dividend but at a reduced growth rate. The future is not without risk.
However, I like Altria’s chances to make this business transformation. And continue to grow what is a large consistent dividend payout, but at a significantly reduced growth rate.
It’s time to look at the company’s financial position. Then, I can support my conclusions about dividend safety stated at the beginning of this article.
Altria Financial Position
To assess financial position let’s look at Altria’s credit rating. And debt to equity on the balance sheet.
Altria Credit Rating
Knowing a company’s credit rating is important. It can make a big difference between companies that go bankrupt and those who survive during difficult times.
A corporation’s credit rating is similar to how your personal credit score works. Higher ratings mean lower risk to those who lend the company money. And, higher ratings mean lenders are more likely to get their loans paid back when due.
Certainly, we are not lenders here at Dividends Diversify, we are dividend stock investors. However, it never hurts to check out a company’s creditworthiness.
Why? Because a company with high credit ratings lend support to its dividend safety.
Altria has an investment grade, low to moderate credit risk ratings. The ratings are provided by two of the big rating agencies.
Moody’s gives Altria an “A3” rating. And S&P checks in at BBB.
The ratings, as provided by these agencies, are very solid. Most consistent dividend-paying companies hold investment-grade ratings, and Altria is no exception.
Source: FINRA Bond Center.
Altria Debt To Equity
Altria’s debt load has increased dramatically in the last couple of years. What was a very balanced and conservative capital structure just a few years ago is now quite leveraged.
Both the JUUL and Cronos investments were financed with debt. This has left the current debt to equity ratio at a high level. Debt to equity is 5 to 1.
Like I said in our discussion about free cash flow. I’d like to see some of that cash go to debt reduction in future years. Otherwise, there are plenty of dividend stocks with low debt to consider for our investments.
But I think Altria will look to reduce debt in the future. However, it may come at the expense of Altria dividend growth.
Now the big question. Is Altria’s dividend safe? Let’s discuss that now.
Altria Dividend Safety
First of all, Altria’s dividend payout ratios are a little high. On the other hand, this is not an uncommon situation for a solidly profitable, but slow-growth business.
A consistently profitable business like Altria’s with minimal capital investment requirements can typically sustain a higher payout ratio.
Also, the dividend payout ratio is right on target. In accordance with the company’s dividend policy.
In general, a lower dividend payout ratio is a better sign of dividend safety. It shows the company has ample room to raise the dividend in the coming years. Or, withstand an earnings drop without having to reduce the dividend.
Furthermore, the company’s debt load is very high. Higher debt can jeopardize a dividend if a company encounters business challenges.
On the other hand, even with those concerns, I still consider Altria’s dividend safe for the foreseeable future. Their business is too profitable and consistent for me to consider otherwise. Throw in the company has an excellent long-term dividend payment track record. And, in my opinion, will go to great lengths to protect its status as a Dividend King.
So, in my opinion, the Altria dividend is safe from a reduction in the foreseeable future. However, for dividend growth and safety over the long-term, a transition to newer more sustainable products is required.
Next up? Our Altria stock analysis and stock research would not be complete with addressing valuation. Let’s do that next.
Altria Stock Valuation
When buying and selling stocks, it’s a good idea to check a stock’s valuation in several different ways. Here are the ways that I like to go about it.
- Dividend Discount Model
- Morningstar fair value estimate
- Price to earnings ratio
- Personal Finance investment newsletter buy target
Altria Dividend Discount Model
The single-stage dividend discount model considers several factors I have discussed thus far.
- Current annual dividend payment – $3.44 per share
- Projected dividend growth – 2%
- My desired annual return on investment – 9%
Using these assumptions, the dividend discount model calculates the fair value of Altria stock at $50 per share.
Altria Price to Earnings Ratio
The Altria stock price to 2019 earnings (excluding the impact of the JUUL write off) sits at about 10 times. A very modest valuation to say the least.
Low stock valuation is not an unusual situation for a company with challenging growth prospects.
At whatever point, the collective mind of stock market traders comes to believe in the growth potential of Altria’s new product platforms, the stock’s value should trade at a higher price to earnings multiple.
But, until then, the Altria stock price to earnings ratio will remain at depressed levels.
Morningstar Fair Value
The investment analysis firm Morningstar believes Altria stock is fairly valued at $54 per share.
Personal Finance Investment Newsletter
Finally, the longtime investment newsletter Personal Finance places a buy target on Altria stock at $45 per share.
Altria Stock Valuation Summary
We have looked at a number of valuation methods that suggest a range of values for Altria stock
Here is a summary:
- Dividend Discount Model – $50 per share
- Price to Earnings Ratio – deeply discounted for no growth
- Morningstar Fair Value – $54 per share
- Personal Finance Newsletter buy target – $45 per share
All of the value measures show that Altria stock is reasonably valued at recent prices.
Finally, 1 more element to add to our Altria stock analysis. A stock forecast and then I will wrap this up.
Altria Stock Forecast
Over the next 3 years, I forecast Altria stock will trade into the mid to high 40s. I base this on:
- the current Altria stock price and valuation
- and the low end of management’s 3-year profit growth estimates
This may not seem like much share price appreciation. And it’s not.
But couple it with the 8%+ dividend stock yield. And you have some pretty decent double-digit percentage total return potential.
Altria Dividend Review & Stock Analysis Wrap Up
Altria is a solid company with a long history of dividend payments. Furthermore, the Altria dividend looks safe and well covered by cash flows for the foreseeable future.
In contrast, long-term business success is less clear. Because it is dependent on transitioning smokers to newer, unproven, alternative product platforms.
My Personal Situation
Altria is one of the larger in my dividend stock investments.
Consequently, I do not plan on adding to it at this time. Rather, I will keep a close eye on their business transformation.
And look for signs that indicate a reduction in dividend safety. As long as Altria’s dividend appears safe, I’m fine holding the stock as part of my diversified dividend stock portfolio.
For Those Who Do Not Own Altria
If I were building a new dividend stock portfolio or did not hold Altria stock, I would consider adding a small position at current prices. The substantial cash dividend can be used to fund purchases in other dividend stocks.
However, there is a risk inherent in Altria’s business situation. So, it is important to hold the stock as part of a diversified portfolio.
And this assumes the investor can tolerate investing in a tobacco company. That, of course, is a personal choice.
From my standpoint, Altria’s current dividend yield projected dividend growth, and status as a Dividend King can not be ignored.
More Dividend Stock Reviews From The Consumer Goods Sector
- Philip Morris dividend stock analysis
- Coke dividend stock analysis
- Dividend stock review: Pepsi (NASDAQ: PEP)
- Hormel Foods dividend growth stock analysis
- Dividends from the largest retailer of consumer goods
My Favorite Dividend Investing & Personal Finance Resources
- Trade stocks for free with the Webull app
- Get stock research from Morningstar
- And stock analysis from Motley Fool
- Or dividend stock recommendations from Simply Investing
- Manage your finances for free with Personal Capital
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