Company Description: Altria Group (MO), formerly Philip Morris, engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. Notable tobacoo brands ownd by Altria include Marlboro, Virginia Slims, Parliament, Copenhagen, and Skoal. The company also produces and sells blended table wines under the Chateau Ste. Michelle and Columbia Crest names; and distributes Antinori and Villa Maria Estate wines and Champagne Nicolas Feuillatte in the United States.
Dividend Reliability A stock's dividend reliability is determined by its dividend payment history as well as its current financial health. Total of four points available.
- The number of Consecutive Dividend Payments - The longer a company has been paying a dividend, the more ingrained the dividend payment is part of the company culture and the less likely it would be removed. (10 to 30 Years = 1 Point More than 30 Years = 2 Points)
- MO has paid a dividend since 1970. 2 Points
- Cash Flow Payout Ratio - The percentage of free cash flow that is paid out as dividends. (Less than 60% = 1 Point)
- Cash Flow Payout Ratio = 92% 0 Points
- Debt to Total Capital - Too much debt can hinder dividend growth as cash is going to debt and interest payments. Total capital is a combination of debt and shareholders equity. (Less than 45 % = 1 Point)
- Debt to total capital = 70% 0 Points
Dividend Growth A stock needs to be growing its dividend on an annual basis. The growth of its dividend should be at a respectable rate, especially if the current yield is low. Total of four points available.
- Number of Consecutive Dividend Increases - The longer a company has been consistently raising a dividend, the more ingrained the dividend increase is part of the company culture and the less likely it would be changed. (10 to 20 Years = 1 Point More than 20 Years = 2 Points)
- Including the spinoff of Kraft (KFT) and Philip Morris International (PM), MO has increased its dividend for 13 consecutive years. 1 Point
- 1 Year Cash Flow Payout Ratio <= Avg 5 Year - A cash flow payout ratio that is going up tells us that dividend payments are eating into the company's bottom line. This could signify a slowdown in dividend growth in the future or a slowdown in the companies earnings. Ideally we'd like the ratio to be less than or equal to the average 5 year payout ratio. (1 year cash flow ratio <= Avg 5 year = 1 Point)
- [1 Year = 92%] > [Avg 5 Year = 89%] 0 Points
- 1 Year Dividend Growth Rate > Avg 3* Year - If the 1 year dividend growth rate is higher than the average 3 year, then we know the dividend growth is accelerating. (1 year dividend growth rate > Avg 3 year = 1 Point)
* I normally use 5 year but the KFT & PM spinoffs would skew that data
- [1 Year Growth = 7.9%] < [Avg 3 Year = 9%] 0 Points
Fair Value If we're going to buy a stock, we don't want to purchase it went its overvalued. Total of 2 points available
- Current P/E < Avg 5 Year P/E - If the current P/E (price divided by earnings) is less than its average 5 year P/E, then we are getting the stock cheaper today than in the past. (Current P/E < Avg 5 Year P/E = 1 Point)
- [Current P/E = 17.3] < [Avg 5 Year P/E =13.7] 0 Points
- PEG < 1.5 - The PEG ratio (Price/Earnings To Growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company's expected growth. The lower the ratio the better. (PEG < 1.5 = 1 Point)
- PEG = 1.76 0 Points
Strengths - MO has strong brand recognition and a loyal customer base. Its primary revenue comes from products whose demand is typically not affected by macro economic events.
Weaknesses - MO's profitability has been decreasing in recent years. Restrictions on advertising limits the company's reach to potential consumers.
Opportunities- The international market presents growth opportunities. MO has shown the ability to acquire similar businesses and make them more profitable by utilizing its economic scale.
Threats - A growing health consciousness in the domestic market. Increasing excise tax on its products. Possible future litigation.
MO scored 2 points in dividend reliability and 1 point in dividend growth, for a final score of 3/10 points. This makes it a weak dividend growth stock, revisit after 1 year. MO has been a spectacular stock to own in the last 4 decades and has created a great deal of wealth for its investors through dividends and spinoffs. With a solid 5.7% dividend yield and strong dividend history, MO would be a good addition for someone seeking immediate dividend income. As I am a younger investor (under 40) seeking long-term dividend growth and my analysis is focused on future income, I do not believe MO's current fundamentals allow me to add it to my portfolio. I would need the free cash flow payout ratio to decline, fair value to improve, and less reliance on tobacco products for revenue before I will consider initiating a position in MO.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.