Altria Dividend Review & Stock Analysis

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 questions about Altria stock. Questions that may be 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.

Use this brief Q&A session for some key takeaways…

Altria dividend stock analysis

Is The Altria Dividend Safe?

The Altria stock dividend appears safe.

It consumes about 80% of the company’s free cash flow. And that cash is supported by a consistent and proven business model. Also, Altria projects slow but profitable growth during the next 1-3 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.

And, each year management increases the Altria dividend. In 2019, Altria became a Dividend King. Since the company has paid increasing dividends every year since 1970.

Altria Stock Analysis & Dividend Review

Perhaps, these are important questions for you too? But, stick around and dig into the details that support my conclusions. To confirm that Altria is still a good dividend stock pick.

No further delays. 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: At no cost to you, I may get commissions for purchases made through links in this post.

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.

Tobacco Brands

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
  • E-Vapor
  • 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.

Non-Tobacco Products

Altria’s product platform is complemented by:

  • Ste. Michelle Wine (sales of this business in process)
  • 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, 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.

Source: New York Times – Philip Morris & Altria Are In Talks To Merge

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.

Source: CNBC – Merger talks receive a chilly response from investors

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.

MO dividend stock review

Altria Dividend Payout

On a forward basis, the annual Altria dividend rate per share is $3.60.

Altria Dividend Yield

This gives us a 7.3% 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 is one-fourth of the annual rate.

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.

You may like this list of companies. That pays dividends in the same months.

Altria Ex-Dividend Date

To receive the next Altria dividend payment, you must complete your purchase before 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 guidance 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 company has increased its dividend every year since 1970.

Altria Is A Dividend King

A King's Crown

The number of consecutive years of rising dividend payments qualifies Altria as an amazing 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 trend.

Table 1: Altria Compound Annual Dividend Growth Rate

1 Year3 Years5 Years7 Years
3.7%10.2%9.5%9.2%

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 new Dividend King.

2020 and 2021 Altria Dividend Increases

Finally, the 2020 dividend increase announcement showed a further slowing of growth. It was just 2.4%.

Then, the 2021 increase came in at 4.7%. Not bad for such a high-yielding dividend stock.

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:

  1. A company proud of its heritage of consistent dividend growth
  2. Clear objectives for future dividend payments based on financial performance
  3. A company that delivers on the dividend growth objectives they have set forth 

Okay. 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 $25-26 billion.

Chart 1: Altria 7 Year Annual Revenue Trend

Altria stock analysis: revenue

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 volumes 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 & 2020: loss from write-offs of investments in JUUL

Chart 2: Earnings And Altria’s Dividend Payout

Altria dividend payout ratio

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. And another $2.6 billion in 2020.

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, 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.

Most noteworthy, 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 about 80% of free cash flow over the past 3 years.

Chart 3: Altria Dividend Payout Ratio Based On Cash

Altria dividends and cash flow

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.

Here’s why:

First of all Altria targets to pay 80% of adjusted earnings per share in dividends. Furthermore, it looks like they are currently operating near that target. Finally, I think the company can grow earnings by 2%-4% annually moving forward.

What does all of that mean? Your dividends can grow 2-4% annually too. Over the longer term.

You will note that this is significantly less than the historical trend. And less than the company’s growth targets.

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 from years past.

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 that survive during difficult times.

A corporation’s credit rating is similar to how your personal credit score works. (you can check your credit rating for free using Credit Karma)

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.  In search of regular dividend income.

However, it never hurts to check out a company’s creditworthiness.

Why?

Because a company with high credit ratings. Has greater dividend safety.

Credit rating evaluation grid for each major rating agency

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 10 to 1. As of the end of the company’s prior fiscal year.

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’s 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 make sustainable dividend payments with 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 dividend payments in the future.  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 paid on shares safe for the foreseeable future.

Their business is too profitable and consistent for me to consider otherwise.

Throw in that 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

Because making consistent returns from dividend stocks. Is partly dependent on avoiding purchases when a stock is significantly overvalued.

Altria Dividend Discount Model

The single-stage dividend discount model considers several factors I have discussed thus far.

  • The current annual dividend payment
  • Projected dividend growth
  • My desired annual return on investment – 9%

Using these assumptions, the dividend discount model shows the stock is currently undervalued.

Altria Price to Earnings Ratio

The Altria stock price to 2020 earnings (excluding the impact of the JUUL write-off) sits at about 13 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 $52 per share.

Source:  Morningstar

Personal Finance Investment Newsletter

Finally, the longtime investment newsletter Personal Finance places a buy target on Altria stock at $50 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 – shares undervalued
  • Price to Earnings Ratio – deeply discounted for slow growth
  • Morningstar Fair Value – $52 per share
  • Personal Finance Newsletter buy target – $50 per share

All of the measures show that Altria stock is a good value at recent prices.

As a dividend investor. No matter how high the dividend yield. Try not to significantly overpay for a stock. It’s not an effective way to build your passive income stream from dividends.

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 50s. 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 high dividend stock yield. And you have a pretty decent percentage. Of total annual 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 holdings among 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 any possible reduction to 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. All part of the benefits and drawbacks of dividend stocks like Altria and others.

From my standpoint, Altria’s current dividend yield, projected dividend growth, and status as a Dividend King can not be ignored.

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Disclosure & Disclaimer: I am not a licensed investment adviser, financial adviser, or tax professional. And I am not providing you with individual investment advice, financial guidance, or tax counsel. Furthermore, this website’s only purpose is information & entertainment. And we are not liable for any losses suffered by any party because of information published on this blog.

I own Altria stock and collect the Altria dividend.