The Basics: Altria (MO) has been one of the best performing stocks for years. 2012 has been no different as the stock has returned about 14% including dividends. People hold different stocks for different reasons. Most people view Altria as an income stock, a great yielder. It does not have the same growth potential of say, Philip Morris International (PM). Nor does it boast a very high dividend growth rate like PM. People love it for its current high yield. Plain and simple.
The Recent Happening: But a significant happening went almost unnoticed on Friday, June 8th when Altria closed at $32.91. Its current yield fell below 5% for the first time since the 2007/2008 spin offs. While it still boasts a very healthy 4.9% yield, people wanting to establish a new position in Altria here for income might do well to pause and take a look at the falling yield over the past 5 years.
The Falling Yield: Yes, capital growth is great but is that really Altria's strength one has to wonder. Altria is seen as an income stock, like AT&T (T) for example. In spite of Altria's repeated dividend increases, the price per share has increased high enough to make the yield keep falling as shown below.
Conclusion: The weakness in Europe has certainly pulled Philip Morris back but is that really a strong enough reason in the long run to award Altria a PE of 20, which is 4 points more than the faster growing Philip Morris? At one point during PM's recent run up, the dividend yield difference between Altria and PM was big enough to make Altria a competitive buy. But with the yields now being separated by just about a point, buying PM over MO seems like a no-brainer here, given the higher earnings and dividend growth prospects. Sure, MO is still a nice stock but does the falling yield push it from the "great" to the "good" category ?
Please voice your concerns or joy about Altria's increasing PPS and falling yield below to have a "smoking" discussion thread.