Altria Stock: Better Than Your Daddy’s Bonds

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The Federal Reserve Board dropped its target federal funds rate to an unprecedented zero amid the 2008 housing bust and credit crisis that roiled financial markets at the time. After, Federal Reserve and Treasury officials were to add Term Asset-Backed Securities Loan Facility (TALF), Troubled Asset Relief Program (TARP), and Operation Twist to the economic lexicon. In summary, government officials have been injecting financial markets with liquidity in order to encourage participants to take out loans, trade securities, and commit to making capital investments. As of March 3, the Federal Reserve balance sheet had bloated to more than $4.2 trillion. Analysts must now acknowledge a new normal.

Stocks that pay hefty dividends, such as Altria (NYSE:MO), are more suitable than bonds for conservative savers in the market for income. In recent years, Altria has consistently offered income yields above 5 percent, while capital appreciation upon the shares has also outpaced the S&P 500 Index. For the sake of comparison, ten and thirty-year Treasury yields stood at a mere 2.60 percent and 3.55 percent as of March 3.

Altria Dividend Projections

Declared Date Record Date Payable Date Amount
05/17/12 06/15/12 07/10/12 $0.41
08/24/12 09/14/12 10/10/12 $0.44
12/12/12 12/26/12 01/10/13 $0.44
02/27/13 03/15/13 04/10/13 $0.44
05/16/13 06/14/13 07/10/13 $0.44
08/23/13 09/16/13 10/10/13 $0.48
12/11/13 12/26/13 01/10/14 $0.48
02/26/14 03/14/14 04/10/14 $0.48 (Projection)
05/14/14 06/16/14 07/10/14 $0.48 (Projection)
08/21/14 09/15/14 10/10/14 $0.53 (Projection)

Source: Altria Investors — Stock & Dividend Information

On July 10, 2012, Altria paid out its fourth 41-cent quarterly dividend over the past 52-week period. At the time, Altria shares changed hands at $32.78, while offering 5.00 percent in dividend yield. Over the course of the next two years, Altria investors were to receive 44-cent and 48-cent per share dividends on a quarterly basis. Altria stock closed out the March 12 trading session at $36.14 per share, which also calculated out to a 5.31 percent dividend yield. Altria shareholders who bought in at $32.00 in 2012 would now be raking in an effective 6.00 percent yield upon the initial investment. Altria did trade for $24.00, as recently as March 2011. Altria investors who held on for the past three years may be banking 8 percent yields upon these shares.

Be advised that Altria executives take pride in paying regular quarterly dividends to shareholders. Altria, as the parent company of Phillip Morris International (NYSE:PM), has also sustained a long history of annual dividend increases. In recent years, Altria has offered dividend increases of roughly 10 percent per annum. At this rate, Altria shareholders of record on September 15 may expect to receive a 53-cent quarterly dividend on October 10. Altria dividend yield would then improve above 5.8 percent if share prices were to flat line over the next two quarters. Most likely, investors who hold these same Altria shares over the course of the next five years will ultimately collect effective yields approaching 10 percent. Again, Altria shares have emerged as a far better option for income investors than your Daddy’s bonds.

The Bottom Line

Altria dividends, of course, do not emerge out of a vacuum. Altria executives have committed to an ongoing pledge to return 80 percent of profits back to shareholders in the form of dividends. As a leading tobacco company, Altria Group controls Marlboro, Black and Mild, Next, Skoal, and Parliament brands. Beyond tobacco, Altria has emerged as a major player in wines and also maintains a 28.7 percent ownership stake in multinational brewer SAB Miller. Altria investors, of course, are always exposed to heightened litigation risks out of government officials and consumer advocacy groups. For now, Altria shareholders may bank upon profitability maintaining pace with global inflation rates, as the company may easily raise prices for its inelastic goods at any time.

Altria closed out its 2013 fiscal year with $4.52 billion in net income. Within two short years, this allegedly stodgy company has grown earnings from $3.38 billion. At $36.14 per share, Altria trades for a relatively cheap sixteen times trailing earnings. Again, conservative investors may consider exchanging Daddy’s old bonds for new Altria shares as core holdings within their respective portfolios.

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