Altria (NYSE: MO) makes cigarettes and smoke-free tobacco products. Its brands include Marlboro, Skoal and IQOS.
Despite cigarette smoking reaching a new low in 2022, Altria continues to generate lots of cash flow and pays a generous 8% dividend yield. While the company attempts to make its products safer, can we say the same about its robust dividend?
Let’s take a look.
Free cash flow has been fairly steady over the past few years, though it dipped in 2022. Even though it was a small decrease, the Safety Net system does not like to see free cash flow heading in the wrong direction.
This year, free cash flow is forecast to spike 10%. That’s good to see, but it doesn’t erase the decline from last year.
The payout ratio is a little high.
Last year, Altria paid shareholders 82% of free cash flow in dividends. This year, with higher cash flow expected, the payout ratio is projected to dip to 78%. Though that’s still above my comfort zone.
For most companies, I want to see a payout ratio of 75% or lower. That gives me confidence that even if a company stumbles and free cash flow drops, it can maintain its dividend. Above that level, I get concerned.
Altria has raised its dividend every year since 2010. The current quarterly dividend of $0.94 comes out to a yield of 8%.
It did cut the dividend in 2007, 2008 and 2009, but Safety Net has a 10-year statute of limitations on dividend cuts. So the fact that it has raised its dividend every year for the last 13 years is positive.
I mentioned that Altria gets dinged for the lower free cash flow last year. It also gets penalized for the high payout ratio.
As of right now, the dividend doesn’t look to be in jeopardy. But if free cash flow doesn’t materialize the way Wall Street expects, that big dividend could get smoked.
Dividend Safety Rating: C
If you have a stock whose dividend safety you’d like me to analyze, leave the ticker symbol in the comments section.
On a Different Note…
I wanted to let all of my Wealthy Retirement readers know that the third edition of my bestselling book Get Rich with Dividends is now available for pre-order.
In it, I explain my proprietary 10-11-12 System in depth, which highlights the critical importance of dividends and the power of compounding. It’s an absolute must-read for anyone who wants to grow their wealth and prepare for retirement.
But don’t take my word for it. This is one of my favorite reviews – taken directly from Amazon:
I really want to thank this author for writing such a fantastic book. It is evident that he has many years of experience in this field, and knows what he is talking about. Every sentence he has said in this book struck a chord with me, and really made me stop and think about a dividend investing strategy. I am now super motivated to pick good companies that will pay me dividends as the years go by.
If you pre-order Get Rich with Dividends now, Amazon is guaranteeing that you will pay the lowest price that it is offered at between now and April 4 (when the book is released).
The pre-order guarantee is right on the book’s page here, so you can now buy the book with confidence that you will pay the lowest available price.
Click here to pre-order your copy today.