We are in the midst of our DIY Dividend Investors Club series which is dedicated to the open discussion and analysis of building and managing a long-term dividend portfolio. The goal of the series is to build a dividend portfolio "watch list" by sector (based on the 9 major sectors in the S&P 500 as well as alternative sectors like MLPs, REITs and BDCs).
Altria Business Overview (source: S&P Capital IQ)
Altria Group, Inc., through its subsidiaries, manufactures and sells cigarettes, smokeless products, and wine in the United States and internationally. It offers cigarettes primarily under the Marlboro brand; cigars principally under the Black & Mild brand; and smokeless tobacco products under the Copenhagen, Skoal, Red Seal, Husky, and Marlboro Snus brand names. The company also produces and sells blended table wines under the Chateau Ste. Michelle, Columbia Crest, and 14 Hands names; and distributes Antinori and Villa Maria Estate wines, as well as Champagne Nicolas Feuillatte in the United States. Altria Group, Inc. sells its tobacco products primarily to wholesalers, including distributors; large retail organizations, such as chain stores; and the armed services. The company markets its wine products to restaurants, wholesale clubs, supermarkets, wine shops, and mass merchandisers. Altria Group, Inc. was founded in 1919 and is headquartered in Richmond, Virginia.
The core of our investment philosophy is to buy great stocks at reasonable prices and we use a combination of fundamental and technical analysis to determine which stocks to buy and when to buy them.
We created our ranking system, which ranks over 750 U.S. dividend stocks on a monthly basis, to help us find the best dividend stocks. In our experience, if you rank all of the stocks in a universe against their peers on a consistent basis, it becomes clear which companies are the strongest and which offer the best investment opportunities going forward. Our composite rating is derived by ranking each stock based on 28 key fundamental and technical data points in five sub-rating categories.
The table below for Altria highlights some of the key data points that we look at when determining our rating.
As highlighted in the table above, Altria has a solid overall Parsimony Rating of 96, primarily driven by high ratings for Risk/Reward Profile (97) and Dividend Track Record (82).
MO has a low beta (0.50) and the stock has exhibited low volatility in the past. In addition, MO has a nice dividend yield of 4.5% and it has delivered shareholders a 250% total return over the past 5 years.
The long-term dividend chart above doesn't do Altria justice as the company did a major spin-off (Kraft) in 2007 (which distorted the payout history). That said, MO has been a tremendous dividend growth stock and it probably has one of the longest dividend track records of any stock in existence. As shown in the chart below, MO has raised its quarterly dividend 5 times in the past 20 quarters (and the company is due for another hike next quarter).
Valuation is a key factor in determining our "Buy Zones."
We use our rating system to determine WHICH stocks to buy and we use our "Buy Zone" reports to determine WHEN to buy them. We focus on four key levels of support when determining a "Buy Zone":
- Valuation - Support levels based on historical valuation multiples.
- Technical - Support from short and long-term trend lines (i.e., 10-week and 40-week moving average).
- Volatility - Target correction levels based on historical volatility and maximum draw down.
- Yield - Support levels based on forward dividend yield.
Below is a summary valuation analysis for Altria:
As highlighted above, MO is currently trading at 19.94x trailing earnings, which represents 19.1% and 30.7% premiums to the company's respective 3-year and 5-year historical averages.
Based on consensus estimates for FYE 12/31/14, MO is currently trading at 16.87x forward earnings, which represents 0.3% and 10.0% premiums to the company's respective 3-year and 5-year historical averages.
Is Altria In The "Buy Zone"?
MO just hit a fresh 52-week high and it currently trades 13.3% above the top range of its Buy Zone. Ideally, we would like to purchase MO under $38.00 (which would equate to a forward P/E ratio around 15.0x and a forward yield around 5.0%).
Altria is a great dividend stock with a fantastic yield. We own the stock in our Model Portfolio and we are enjoying the ride. While we don't recommend buying more at this level (due to valuation), we will consider adding to our position on any meaningful pullback.
Disclosure: The author is long MO. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.