Company Analysis – Altria Group (MO)

The Altria Group is a mainstay of many dividend investor’s portfolios. It has been around since 1985, when it emerged from a re-branding of the massive Phillip Morris Company, known primarily for their lines of Tobacco products. Their most recognizable brand is Marlboro. Beyond Marlboro, they do own a variety of other famous cigarette brands as well as smokeless tobacco alternatives such as Copenhagen and Skoal. Altria focuses on the domestic U.S. market as opposed to Phillip Morris PM, which oversees international sales and distribution. They are headquartered a brief drive out of Richmond, Virginia, an area which has been associated with tobacco growth and production since the earliest days of the republic and before. The company has also taken an interest in a number of emerging companies expanding their offerings such as Cronos Group focused on cannabinoids and based out of Toronto, Canada. Altria has purchased a whopping 45% stake for the price of 1.8 billion dollars. This purchase grants them access to the emerging and fast growing CBD marketplace as well as the increasingly shifting cannabis marketplace. Juul, based out of San Francisco, CA has seen Altria purchase a significant 35% stake to the tune of $12.8 Billion dollars, is the emerging vaping company with a dominant share of the vaping marketplace and they’re expected to continue their dominance. Finally, Anheuser-Busch Inbev based out of Leuven, Belgium, with a respectable 9.6% ownership stake. Anheuser-Busch Inbev owns hundreds of alcoholic brands throughout the world and mainstay brands such as Budweiser, Corona, and Stella Artois.

There are a number of factors about Altria Group which makes them highly attractive to a dividend income investor. The first and foremost is the exceptional dividend yield. Paying out $3.20 a year or $.80 a quarter for a dividend yield exceeding 6% is phenomenal for any major company, but when paired with Altria’s standing as a dividend aristocrat with 49 years of consecutive dividend increases, it is easy to find something here to love. As of the time of writing 7-25-2019 Altria has a P/E ratio of 15.17 making them about fairly priced in a generally overpriced market. Additionally, there are a number of newer investments and technologies coming into play for Altria showing how they plan to adjust to changing times and consumer tastes. The first of which is the IQOS vaping system. Designed by Phillip Morris initially for the international market this product was recently approved by the FDA for sale in the USA ( FDA approval). By offering a tobacco alternative which has already seen some international success for health conscious individuals, Altria will be sure to continue their dominance solidly in the tobacco sector throughout the foreseeable future. Another exciting addition was the 35% stake in Juul, the up and coming vaping company, which has already grabbed a vast majority of the US market share (Juul marketshare). By diversifying into this venue Altria is ensuring they not only remain relevant with the next generation of smokers but that they will be invested at the forefront of emerging trends in this segment. Yet another exciting acquisition by Altria was Cronos group. Now that Marijuana has been legalized in Canada and as the waves of legalization for both medical and recreational use cascade over the United States, it seems only a matter of time until this can become a dominant sector in the cigarette business. Also on this point, I like the fact that Altria has a long and successful history of lobbying giving them what I feel will be a great toolbox to roll out distribution for cannabinoid products once they eventually become fully legalized in the United States. Finally Altria maintains an interest in Anheuser-Busch Inbev giving them exposure to the related sin stock sector of alcohol. What is one of the most popular times to smoke? After a couple drinks on a night out! Although Altria maintains a minorty stake in Anheuser-Busch, I personally like this position as I feel it offers good synergies with their core focus areas while providing some diversity at the same time in their holdings.

Now, that all sounds well and good but what are some of the downsides for investing in this company or more broadly, this segment of the market? For starters, there is the general downturn in the number of cigarette smokers. This number is projected to increase year over year. I personally believe Altria is diversifying properly, it is certainly important to note and be aware of. Secondly, some investors may have ethical concerns about investing in a tobacco giant like Altria. I personally believe that one of the greatest things about the United States is the freedom that individual adults have to enjoy adult products in their private lives, on a night out or on a break from their work. I believe that will continue to be a mainstay for large segments of the population in one form or another and I encourage individuals to make their own informed decisions about which products they may or may not choose to partake in. Additionally, a potential danger for investors to take note of is the concentration in the US market space. Unlike Phillip Morris which has great international exposure Altria is essentially limited to the United States, placing them in potential risk of additional laws or regulations unilaterally damaging their bottom line. That being said, this is a company with significant branding and lobbying experience which has faced a negative onslaught from both regulators and the media for a long time and has continued to come out on top and reward their shareholders generously along the way.

Authors note- I am invested and long MO. I think their recent downward swing provides a good buying opportunity for the less squeamish investor. The views and opinions expressed in this articles are the authors alone, and are offered for informative and discussion purposes only. Please do your own research and due diligence to decide if this is a company that makes sense for your personal portfolio.

Questions? Comments? Have something you would like to see featured? Please write to me @ Reinvested@yahoo.com.

Company Analysis, Dividend, dividend growth, dividend investing, Income, Sin stocks