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Altria Stock Is a No-Brainer with 9.3% Dividend Yield


May. 13 2020, Published 9:55 a.m. ET

  • Currently, Altria stock offers a lucrative dividend yield of 9.3%.
  • The stock is trading at an amazing bargain.

So far, Altria Group (NYSE:MO) stock has corrected about 28% this year. However, the considerable decline in the stock has driven its dividend yield higher and its valuation lower. Investing in Altria stock would fetch investors an annual dividend yield of 9.3%.

Investing in Altria stock is a no-brainer considering the company’s solid track record of dividend payments and low valuation.

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Altria’s solid track record of dividend payments

Altria is a dividend aristocrat, which implies that the company has increased its dividends consistently over the last 25 years. The company has raised its dividends 54 times in the past 50 years. Meanwhile, Altria targets a dividend payout ratio of about 80%, which is encouraging for an income-seeking investor. In August 2019, the company hiked its quarterly dividend to $0.84 per share.

Many companies have announced a dividend cut amid COVID-19. However, Altria hasn’t announced a dividend cut. I think that the company’s payout is safe considering its ability to generate strong cash flows.

Recently, Altria reported better-than-expected first-quarter results, which beat analysts’ estimates by a wide margin and marked strong double-digit growth. The company posted an adjusted EPS of $1.09 on revenues net of excise taxes of $5.05 billion. Wall Street expected the company to post an adjusted EPS $0.98 on revenues of $4.61 billion.

Altria benefited from higher net price realizations and an increase in shipment volumes in the smokeable and oral product segments in the first quarter. The adjusted operating income in both of the segments marked stellar double-digit growth, which supported the bottom line.

Altria runs a high cash generative business, which mitigates liquidity risks. In March 2020, the company drew down its $3 billion credit facility.

Attractive valuation

Altria stock trades at a lower valuation multiple compared to the industry average. The stock trades at a next 12-month PE ratio of 8.3x, which is significantly lower than the industry average of 18.6x. Altria trades at a next 12-month price-to-cash flow ratio of 7.6x, which is also low compared to the peer group average of 11.9x.

Altria’s low valuation and high yield make it one of the best investment choices.


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