Altria Vs. Brown-Forman: Battle Of Dividend Vices


The whiskey business is rapidly growing, while cigarettes are in decline.

Both businesses have a long history of rewarding shareholders.

Altria compares favorably to Brown-Forman based on the 8 Rules of Dividend Investing.

Both businesses sell addictive ‘vice’ products that harm consumers.

Brown-Forman (NYSE:BF.B) manufactures and sells alcoholic beverages domestically and internationally. The business has several high profile alcohol brands including Jack Daniels.

Click to enlarge

Source: Barclays Back to School Investor Presentation

Altria (NYSE:MO) manufactures and sells tobacco products and wine. Altria owns the Marlboro, Copenhagen, Skoal, and Black & Mild tobacco brands.

Current State of Affairs

Brown-Forman expects high single digit growth this year. In 2013 the company's net sales increased 8%. Brown-Forman's largest source of revenue is their Jack Daniels brand. Jack Daniel's experienced volume growth of 6% in 2013. The brand's continued strong performance comes from the resurgence of drinking whiskey over the last decade.

Brown-Forman is also experiencing strong growth in emerging markets. Emerging market revenue was up 12% in 2013. Brown-Forman's strong growth trends show no signs of slowing.

Altria's revenues decreased by 0.6% in 2013. This is due to the overall slow decline of the cigarette industry.

Source: Altria Group CAGNY Conference

Altria operates in 3 segments.



2014 Rev. Growth

Op. Margin

Op. Income

Smokeable Products

$ 21,868



$ 7,063

Smokeless Products

$ 1,778



$ 1,023


$ 609



$ 118

Click to enlarge

Source: Altria 2013 Annual Report

Altria's revenue growth should continue to stagnate due to the significant headwinds and challenges in the cigarette industry. Altria is attempting to overcome these obstacles through acquisitions in the e-cigarette industry, and expansion of their high margin smokeless tobacco products.

Comparison 1: Valuation

Altria appears to be fairly valued based on its P/E multiple compared to its peers.







Philip Morris



British American Tobacco



Reynolds American






Click to enlarge

Brown-Forman appears to be somewhat overvalued based on its P/E multiple peer comparison.










Constellation Brands



Beam, Inc.



Click to enlarge

Altria has a P/E of about 17 versus a P/E of close to 30 for Brown-Forman. Altria easily wins the valuation battle.

Comparison 2: Dividends

Altria has a dividend yield of 5.00% versus 1.58% for Brown-Forman. Both companies have a long history of dividend increases. Altria's dividend yield is significantly higher, winning it the dividend comparison round.

Why it Matters: Stocks with higher dividend yields have historically outperformed stocks with lower dividend yields. The highest yielding quintile of stocks outperformed the lowest yielding quintile by 1.76% from 1928 to 2013. (Source: Dividends: A Review of Historical Returns)

Comparison 3: Payout Ratio

Brown-Forman has a payout ratio of only 35.30% versus 81.40% for Altria. Brown-Forman's low payout ratio gives it significant room to ramp up dividends in the future. Brown-Forman claims this category by a wide margin.

Why it Matters: High-yield low-payout ratio stocks outperformed high-yield high-payout ratio stocks by 8.2% per year from 1990 to 2006.
(Source: High Yield, Low Payout by Barefoot, Patel, & Yao, page 3)

Comparison 4: Growth Rate

Brown-Forman has grown revenue per share by close to 6% per year since 2009. Altria has grown revenue per share just under 2% per year in the same time period.

Altria's revenue per share growth comes predominantly from share repurchases, while Brown-Forman's growth comes from a mix of share repurchases and organic revenue growth. Brown-Forman is growing significantly faster than Altria.

Why it Matters: Growing dividend stocks have outperformed stocks with unchanging dividends by 2.4% per year from 1972 to 2013. (Source: Rising Dividends Fund, Oppenheimer, page 4)

Comparison 5: Volatility

Brown-Forman has a long-term standard deviation of 23.15% versus 20.29% for Altria. Both of these businesses have fairly low volatility due to the stability of their industries. Altria has the slight edge in this category.

Why it Matters: The S&P Low Volatility index outperformed the S&P 500 by 2 points per year for the 20-year period ending September 30th, 2011. (Source: Low & Slow Could Win the Race, page 3)


Altria outranks Brown-Forman based on the 8 Rules of Dividend Investing due primarily to its significantly higher dividend yield. Brown-Forman has higher growth and a lower payout ratio, but not so much so that it outranks Altria overall.

Both of these businesses operate in slow-changing industries. Altria's industry is slowly declining, while Brown-Forman's is growing. Altria makes up for their stagnant industry growth by paying out 80% of profits as dividends, and repurchasing shares at a rapid clip.

Brown-Forman would be the better investment at equal valuations due to its higher growth and more favorable industry. At current prices, I prefer Altria over Brown-Forman.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.