E Why Altria Is A Top Retirement Stock

Altria has somewhat decelerated in recent years thanks to the growing popularity of e-cigarettes and other products. However, the company has invested heavily in alternative products, via its 35% stake in JUUL and its $1.8 billion investment in Cronos. It is also trying to expand the reach of its own e-cigarette brand IQOS. All these are likely to be significant growth drivers in the upcoming years. Nevertheless, due to the deceleration of Altria in recent years and the transitional phase of this business, it is prudent to expect Altria to grow at a slower pace than its historical growth pace. We expect Altria to grow its earnings per share by approximately 2.4% per year on average over the next five years.

Competitive advantages

The most important competitive advantage of tobacco companies, including Altria, is the inelastic demand for their products. Altria has an additional competitive advantage, namely the unmatched strength of its flagship brand, Marlboro, whose market share has remained above 40% for several years. Thanks to the strength of its brand, Altria has been able to raise the price of its products year after year without hurting its market share.

Another competitive advantage of Altria is its rock-solid business model, which requires minimal investments. Thanks to the extremely low capital expenses required in this business, nearly all the operating cash flows end up being free cash flows. This is the reason behind the reputation of tobacco stocks as being extremely shareholder-friendly.

Dividend

Thanks to its consistent earnings growth and its excessive free cash flows, Altria has raised its dividend for 50 consecutive years. This is by far the longest dividend growth streak in the tobacco industry and places Altria in the group of Dividend Kings.

Due to the aforementioned headwinds, the stock of Altria has underperformed the broad market by a wide margin in recent years and hence the stock is currently offering an exceptionally high dividend yield of 7.6%. In most cases, such a high yield usually signals that a dividend cut may be just around the corner but this is not the case for Altria. The stock has a payout ratio of 78% and has kept growing its earnings per share despite the heating competition. The company has increased its debt load due to its recent investments but it is now in the process of using its excess cash flows to reduce its debt load. Overall, Altria is not likely to cut its dividend anytime soon. The company’s secure high yield should appeal to investors looking to live off dividends.

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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William K. 2 months 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.