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Altria: Tobacco Stock at a Discount

The same thing that always happens, they appeal, win, and raise the dividend.


On Nov 09 11:42 AM PastTense wrote:

> And what happens if Altria loses additional major lung cancer lawsuits?

Will Altria Group Burn Out Long Term?

Dude, you can't even spell Philip Morris correctly and we're supposed to give you credibility??

All that matters is that Altria is growing. The dividend alone provides the return. The growth in the dividend takes you from an average to an above average investment. Add in the safety of MO's cash flows and you have a superior investment that will continue to trounce the market over time.

Five Stock Ideas in Two Sectors with the Best Outlook

Zacks has a sell rating on Altria. Why is it that Seeking Alpha is so full of incorrect information?

Philip Morris International and Altria: Compare and Contrast

Altria gets no love, and that's a shame. It's widely misunderstood and ignored since the separation from PM Intl. and as a result, it's priced as if it's moribund. All it needs to do to justify it's current price is simply exist, but let's talk about all the ways they can grow. First off, Altria just purchased UST. Unfortunately, the timing was bad in that they announced the deal prior to Lehman Bros. bankruptcy and closed the deal after. They were forced to float $10.4 billion worth of bonds during the darkest depths of the credit crisis, and forced to pay 9.3% interest on the money borrowed. The panic is over and now those bonds trade at 113 cents on the dollar. When Altria refinances them, you'll get instant earnings growth. You'll also get $300 Million in cost savings from the UST acquisition. You'll also get price increases across the board. Smokers might not like price increases, but the majority won't quit because of them. Should Altria decide to resume it's share repurchase program, every dollar they spend will save them 7.6 cents annually in dividends not paid, and this money freed up will allow them to continue to increase the dividend at a rate higher than earnings growth and still maintain the same payout ratio. The difference between earnings and dividends paid is $820 million annually, or 40 cents per share. However they choose to spend it, it's going to be a benefit to earnings. Not saying I dislike PM Intl. I actually like that company much more, but price is what you pay, and value is what you get... and currently, MO is the better deal.

Choose Phillip Morris, Not Altria

Typical five minute analysis. Make some general comments about how a company is better than another, and post it on Seeking Alpha. No mention that PM's multiple is 40% higher than MO's, so i think it's safe to say that the growth is priced in. Let's talk about how MO can grow. First, they can continue to raise prices. Second, they have cost savings from the UST acquisition. Third, When they financed the UST acquisition, they issued debt during the depths of the credit meltdown. They are paying a hefty 9.3% rate on $10.4 billion dollars. These bonds are now trading at 114 cents on the dollar, so Mo can increase earnings simply by refinancing this debt, or by paying it down. They can increase earnings by paying off debt. They can increase earnings per share by repurchasing stock. Every dollar they spend buying back stock saves them 8 cents annually, which in theory, could allow them to raise the dividend further without paying out more actual dollars.

I'm not saying one is better than the other. I own both, have owned both for over a decade. They are both great. If MO's earnings multiple was equal to PM's I'd sell it. It's not. MO is priced as if it will never grow again. MO's dividend alone plus price appreciation of 16 cents annually will equal the markets long term average return of 9%. This assumes they don't increase the dividend, and I would be shocked if they didn't increase it next month, the last Wednesday in August when the board meets. I recently bought my 3 year old daugher a single share of MO. By the time she even knows what that means, the dividend alone will be more than today's stock price.