howard_roark

Altria: Value Play or Value Trap?

Do those numbers reflect the spin of KFT and PM? I would guess not, because Altria (MO, the domestic tobacco unit that we're discussing in this thread) has been providing shareholders annual returns in double digits for years. Sure, cigarette sales are down, but the company has turned to other sources to grow income.

The incredible pricing power of the Marlboro brand allows the company to fend off tax increases by raising prices on cigarettes. Year over year, cigarette sales are down, but the vast majority of smokers continue to pay any price for Marlboros, and they will continue to do so.

The Master Settlement Agreement has insured that MO will be around for a long time. The company has to exist and be profitable so it can make the payments to the states as mandated by the agreement. The proposed FDA regulation of tobacco will insure that MO maintains its market share and will keep MO as the preeminent tobacco company in the United States.

The annual dividend is $1.28 for this stock, which is trading for around $17. MO has raised the dividend annually for 30 years or so, and at a time when many companies are cutting or eliminating their dividend, I'm willing to bet anyone that MO raises theirs from 8-10% this summer.

If you kept the international unit (PM) after the spin, you will be astounded at the future growth. The dividend of $2.16 for a stock that closed at $41 or so Friday is almost 6%, so that's pretty nice too.

MO has been the core holding in my IRA for many years, and is one reason why I'll be sitting on a beach somewhere enjoying a drink with a little umbrella in it pretty soon.




On May 08 05:13 PM consumeronstrike wrote:

> Here's another thought;
> Sales growth last 5 years for Altria = MINUS 25%

Altria: Value Play or Value Trap?

Thanks for you reply, Ryan. KFT's main problem appears to be rising commodity costs, which have impacted the company's margins. When earnings were announced last month, the CEO indicated that the new focus was on margins, so Warren may know something!

Altria: Value Play or Value Trap?

I agree that Altria is facing some headwinds in the cigarette tax area, but this company has diversified to meet those challenges. The acquistion of UST gives the company a dominating presence in the smokeless market, and they picked up the St. Michelle wine business in the deal also. Purchasing the Middleton cigar company over a year ago further shifted the focus off of cigarettes, and has proven to be a very profitable move.

And what about the company's 28% stake in SAB Miller beer?

I agree that PM offers tremendous growth opportunites, and I own both MO and PM. I jettisoned KFT after the spin off, because that was truly the rotting piece of the company.