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Investopedia Advisor submits: Just in time for its scheduled Board of Directors meeting on August 30, a U.S. district court issued a ruling in the racketeering case that was filed against MO in 1999 by the Clinton Justice Department.

The ruling found for the government, but did not hit Altria Group Inc. (NYSE:MO) with monetary damages. The ruling has also removed the last legal hurdle that will allow MO to spin-off Kraft. Some expect the announcement to come as early as the August 30 board meeting.

The timing is not exact, but the end result remains: MO will work to realize locked up shareholder value by spinning out Kraft. Also expected at this board meeting, and with a higher probability of quick enactment, is the board raising the dividend for the 39th time in 37 years.

I expect MO to raise the dividend approximately 9% to an annual rate of $3.48. This will give MO a current yield of 4.14% based on its recent closing price of $83.97. MO also stopped share re-purchases in Q1 2003, as it was heavily re-investing in its food business.

With the pending spin-off of Kraft, MO may begin to use its substantial cash flows from the tobacco business to restart its stock re-purchase plan. Based on estimated earnings of $5.30 for 2006 and $5.55 in 2007, MO should deliver a free cash flow yield of 5.7% and 6.5%, respectively. MO shares trade at 15.8x and 15.1x earnings without the renewal of its share re-purchase plan.

As management enacts its value realization plan, shareholders will collect a solid dividend of 4.14%. Although I do not expect dividend growth, which has been over 9% the past 2 years, to continue, I do expect MO to use a combination of rising dividends with share repurchases.

There remains a small risk that several legal cases dealing with “light” cigarettes may cause problems. However, MO has built a solid track record of fending off and winning a majority of the legal cases it has faced. The probabilities are now beginning to tilt in favor of shareholders and the risk of profits going up in smoke have diminished.

MO 1-year chart:

By Edward Stavetski, Contributor - Investopedia Advisor

At the time of release Edward Stavetski owned shares in Altria Group.

Source: Altria's Opportunity to Unlock Shareholder Value