Want To Buy Altria At 6% Yield ? Be Ready

| About: Altria Group, (MO)

Altria Group (NYSE:MO) has just announced its 4th quarter and full year results for 2013, as Seeking Alpha has covered here. Here are some key highlights:

  • 4th quarter EPS missed by a cent
  • Revenue beat big by $1.6 billion
  • Full year diluted EPS grew 7.7%
  • 2014 forecast is for EPS to grow by 6% to 9%

Okay, almost everything seems good above so what is the need for this article, right ? Well the stock is down close to 3% as of this writing and was down 3.5% at the day's low. Why is this important ?

  • Current yield is almost 5.5%, easily the highest among big tobacco names, including Philip Morris (NYSE:PM). Philip Morris is in the midst of its own sell off and that is covered here.
  • As with Philip Morris, the current yield for Altria is the highest since the 2011 October market turmoil, when almost all stocks reached their 52-week lows.
  • Meanwhile, Altria has promptly increased its twice, in August 2012 and August 2013. In other words, the market conditions and sell offs not withstanding, strong companies like Altria will reward investors who stick with them.

(Source: YCharts.Com)

  • But, where is the 6% yield the article's title talks about ? Altria's 5 year dividend growth rate stands at 8.4%. If the company follows the same and increases its dividend in 2014 August/September, we will be looking at a dividend per share of $2.08.
  • Given Altria's history, there is just no question on "whether" the company will increase its dividend in 2014. The question is not also about "when" as the announcement will likely come in August or September 2014. The only question is "how much." And using the 5 year average is reasonable enough.
  • $2.08 annual dividend means a share price of $34.70 is the 6% yield level. The stock is right now at $35.30, and that means the 6% yield price is a mere 1.7% away from the current share price. The way 2014 has started, it seems like that will not be too far off.
  • Even if you just buy at today's price of $35.30, the yield on cost will likely grow significantly for patient investors as the table below shows. It assumes an annual dividend growth rate of 5%, which is far lower than Altria's average since the 2008 spin offs.

Conclusion: While it might seem repetitive, there is no denying that buying bargains when there is blood on the street is likely to be a successful long-term strategy. Altria is highly likely to be around for a long time and reward investors throughout. Instead of waiting for some magical 5% or 6% yield points today, if we are just patient enough to wait even for a few months, those yield points will eventually reach us as shown in this example.

Disclosure: I am long PM, MO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.