The tobacco industry is protected by the government. The tobacco tax revenue in the U.S. topped $18 billion back in 2015. Altria is one of the major tobacco companies stuffing Uncle Sam’s pockets.
Many investors consider tobacco to be an unethical investment but I’m not here to debate that. Instead, let’s take a look at Altria’s business, dividend history, and payout safety going forward.
Business Overview and Highlights
Altria Group is a $94 billion business that’s based out of Richmond, Virginia. Altria employs 8,300 people and the company pulled in $19 billion in sales last year. That works out to $2.3 million per employee.
The company holds an investment grade credit rating of BBB from the S&P. This allows Altria to issue cheap debt to expand operations and pay dividends.
Altria Dividend History 10-Years
Altria paid investors $1.68 per share a decade ago. Over the last 10 years, the dividend has climbed to $2.54. That’s a 51% increase and you can see the annual changes below…
The compound annual growth is 4.2% over 10 years… but over the last year, the dividend climbed 8.1%. The increase in dividend growth is a good sign. Altria might work out as a great income investment. Let’s take a look at the yield…
Current Dividend Yield vs. 10-Year Average
Altria’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
Altria’s dividend yield comes in at 6.4% and that’s slightly below the 10-year average of 6.65%. The chart below shows the current dividend yield vs. the 10 year average…
The slightly lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Altria Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So a payout ratio of 60% would mean that for every $1 Altria earns, it pays investors $0.60.
The dividend payout ratio is a good indicator of dividend safety… but accountants manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s Altria’s dividend payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years and the trend is up. The last reported year shows a payout ratio of 103.3%. This doesn’t give any wiggle room for Altria’s board of directors to raise the dividend.
Investing in tobacco companies right now is a good risk-to-reward setup. You might want to shop for better dividend stocks in the current market.
If you’re interested in seeing more dividend research, please comment below. You can also check out our free dividend DRIP calculator.
Good investing,
Robert
