E Why Altria Is A Top Retirement Stock

Despite the coronavirus crisis, the S&P 500 has rallied 27% in the last 12 months, to new all-time highs. Consequently, income-oriented investors are struggling to identify stocks with attractive and safe dividend yields. In addition, many high-yield stocks carry the risk of a dividend cut upon the next downturn. Altria (MO) is a bright exception, as it is a top retirement stock, with a 7.6% dividend and a material margin of safety.

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Business overview

Altria sells cigarettes, chewing tobacco, cigars, e-cigarettes, and wine under the Marlboro, Skoal, Copenhagen, and St. Michelle brands, among others.  The company has also tried to diversify away from its flagship tobacco products and thus it has a 10% equity stake in Anheuser-Busch InBev (BUD), a 35% stake in e-cigarette maker JUUL, and a 45% stake in the marijuana company Cronos Group (CRON). Nevertheless, Altria still generates the vast majority of its revenues and earnings from its smokeable tobacco products.

In the last few years, the flagship business of Altria has been facing intense competition from e-cigarettes. In an effort to defend its business, Altria acquired a 35% stake in the leader of this market, JUUL. However, the tobacco giant overpaid for that stake, as the transaction took place near the peak of the euphoria over the prospects of JUUL. Since then, the regulatory authorities have significantly restricted the marketing and expansion efforts of JUUL and thus they have limited its growth potential. As a result, Altria wrote off $4.1 billion off its stake in JUUL, less than two years after its acquisition of the stake.

On the bright side, Altria has managed to remain in its multi-decade growth trajectory despite the heating competition in its business. In 2020, the company grew its revenue 4.2% and its earnings per share 3.6% over the prior year. Moreover, it expects to grow its earnings per share 3%-6% this year.

Growth prospects

Altria has always faced a negative secular trend, namely the slowly decreasing portion of the U.S. population that smokes. However, this headwind has not prevented the tobacco giant from growing its bottom line. Thanks to the inelastic demand for its products, Altria has consistently raised the prices of its products year after year and thus it has grown its earnings per share every single year for more than a decade. Over the last decade, it has grown its earnings per share at an impressive (for a mature company) 11.5% average annual rate.

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William K. 1 month ago Member's comment

Certainy this is an interesting analysis and what looks like a good investment hint. But possibly there are other issues not

mentioned, as is often the case wth seemingly great news.

BUT, thanks for an interesting article about an interesting organization.