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Altria Yield Nearing 10% Again

May 06, 2020 1:07 PM ETAltria Group, Inc. (MO)162 Comments
Bill Maurer profile picture
Bill Maurer


Cigarette giant Altria (NYSE:MO) has always been an income investor's dream. The company has paid a solid dividend over the years, and the quarterly payout has increased very nicely over time. With the recent decline in shares, the stock's dividend yield has jumped again, putting the name just a stone's throw away from having an annual yield in double digits percentage wise.

When I last covered Altria back in August 2019, the company had just raised its quarterly payout to the current $0.84 per share level. At that time, the annual yield was a bit over 7.00%, which represented a spread of almost 525 basis points above the 30-Year US Treasury bond. Shares have declined since then, hitting a low under $31 this year, and the most recent decline has put the yield back above 9.00% as seen below.

(Closing data sourced from Yahoo! Finance)

Primarily due to Altria's yield rise, the spread to the 30-Year is about 780 basis points as of Tuesday's close. Fixed income is yielding basically nothing right now, so high yielders like Altria are where investors need to go to generate any meaningful income. Recently, the company announced strong first quarter results, but it was forced to pull yearly guidance like so many names out there due to the coronavirus.

While Altria may not produce as much revenue or earnings this year as some were hoping for a few months ago, this isn't a name that is in any financial trouble. In fact, the company just borrowed $2 billion at fairly decent rates. The table below shows you this recent offering against the last major debt deal from early 2019 that was used to help with the Juul acquisition.

(Source: Feb. 2019 offering, seen here, and May 2020 offering, seen here)

Yes, this year's bond offering

This article was written by

Bill Maurer profile picture
I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have been active in the markets for several years, and am primarily focused on long/short equities. I hold a Bachelor of Science Degree from Lehigh University, where I double majored in Finance and Accounting, with a minor in History. My major track focused on Investments and Financial Analysis. While at Lehigh, I was the Head Portfolio Manager of the Investment Management Group, a student group that manages three portfolios, one long/short and two long only. I have had two internships, one a summer internship at a large bank, and another helping to manage the Lehigh University Endowment for nearly a year. Disclaimer: Bill reminds investors to always do their own due diligence on any investment, and to consult their own financial adviser or representative when necessary. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (162)

Here in PA, this county, Dauphin is still on lockdown. Liquor is controlled by the state. To order
liquor, we call the store and use a credit card, then pick it up. Next door is a tobacco store that
NEVER closed and is open as we speak. Lights blazing in the storefront windows. And they sell JUUL. They are open 7 days/week. PA has many tobacco shops, all open. Go figure. I do think
PM will buy MO, maybe sooner since JUUL moved to DC. Smart move. Long MO, PM, BTI And, I hope PM will also buy Imperial Brands. Happy hunting to all.
Access to liquor and tobacco remained essentially unfettered during lock down in Michigan. Our nascent recreational cannabis industry has exploded during this plague. The first rec sales began Dec 14, 2019. 60% of all rec sales in Michigan have occurred in the last nine weeks. They can not open the dispensaries fast enough.
Curbside delivery for weed, ten feet from a single family home.
Back alley barbers for your hair.
Not that there's anything wrong with that.
I bought some MO a few days ago for my taxable account. Down 7% since then oh well. The bifurcation beetween growth and value stocks seems to be at all time highs right now
arthur_bishop1972 profile picture
Same here, at $37.90...then it sank...
Investing With Confidence profile picture
Do not worry.

We are in this for the income which is nice and secure.
I confess I haven't followed MO like I once did, but for some reason, I keep thinking that I read MO "wrote off" JUUL as an investment loss.

Did that actually happen?

Or am I imagining things?
AlphaElephant profile picture
Yes, they wrote down most of it. 75% perhaps.
AlphaElephant profile picture
Thank you for the reminder; I bought more $MO today. And more $PM.
Is wondering if the accounting irregularities at Cronos have something to do with the stock price. When is Altria going to seed Cronos with management personnel like they have with JUUL? Have they already?
Gwyther1949 profile picture
The Cronos BOD has the following directors from Altria: Jody Begley - SVP Tobacco Products, Murray Garnick - EVP & General Counsel and Heather Newman - SVP Corporate Strategy. Don't know of any Altria people that have become employees of Cronos.
@Bill Maurer Bill where is Elliott in your scenario?
I have a limit buy order of $32 for MO. As of today, MO is about $35. Not too long now!
When heaven rains gold, it is our job to collect them.
The ability to refinance their Debt while keeping dividend in range of $ 0.8 per quarter will be a challenge. The longer the shelter in place lesser will be sales, lesser FCF. Expect a cut in dividend to $ 0.75 (by end of Q3-2020); Which is still OK ; JUUL was a complete disaster,,,the board should take a 25% pay cut and zero out all variable compensation for next 3 years..
arthur_bishop1972 profile picture
@ $1000 cash says you're wrong wrt to divvie cut.
company is cutting over 2bb in costs over the next few years, in addition they've written down the JUUL investment , their debt is super manageable and to boot they have have a great catalyst with the licencing of IOQS from PM which has been a huge hit in ASIA and EU. HUGE !!! its already gotten FDA approval , by the way the only one and will roll it our nationally within 24 months. No cut but no raise.
We will get a raise. No doubt whatsoever.

And I have a decent track record when it comes to this stuff. I even called the Second Kindering.
I have confidence the JUUL situation will work itself out, especially after moving their offices to DC. I'm sure MO initiated that and said if you want to halt the legal $hit and get back to making $$, you'd better get as close to the regulators as possible. MO has been fighting regulations/regulators for 50+ years.
percivalx profile picture
@steve20 I agree. The move to DC tells me they still believe in the company and want to stay in business. Hope it works out as well.
Apply Tencap method to Altra shares and this one is obvious. Value investors want to OWN businesses where they can get their share of the MONEY.. Afterall, we want to get paid for our ownership and great vision.66 B market cap ~7 Billion in FCF .. 7.5 B in NI and 1-2B in taxes.. OER of 7.85.. PE ratio of 8.8 .. FCF yield of 10.6% The dividend can be considered extremely safe. Payout ratio of 80% and they grow the dividend every year for 50 plus years. This dark knight comes through every quarter by rewarding investors as though they are actual company owners. What a refreshing business Altria’s seems as Americans go back to their historical tobacco roots. What a history it has been and it continues into the pandemic as Altria WILL buck the trend for this downturn. During a late bull cycle, where speculators cling to high multiple with juul risk totally priced out and a new CEO in we feel we can look forward to outperformance. Historically, Altria’s median yield is 4.96%. Currently, the stock is yielding 9.3% this is a no brainer for dollar cost averagers who want to have REAL passive income.
Citadel raising cash for redemptions in June. Stock to own. A gift down here. Billy Gifford gas a ten year plan. Re-invest down here. Machines running 24/7.
Mktneutralhedger profile picture
Yield too high is a big risk not a benefit. In case it's reduced the stock craters like it happened in the case of Shell. I would stay away from these situations.
LifeIsAHoot profile picture
The stock would be $1 and the yield would be sky high.

Who cares what the stock price is as long as their cash flow covers their dividend?

Why don't people understand this?
Please, Mktneutralhedger, leave that money on the table. The rest of us will pick it up.
Picked some today...will add as it drops 10% at a time
Woah what a timing by the author on writing MO article after reading AAPLE article yesterday on same topic; hopefully the new debt with lower interest rates will help with lower interest payment costs in long term; maybe now move on to PM; long MO and PM; thank you for article
I hope this helps some posters; my son got 200 MO shares in a trust right after the agreement and very cheap; with all the spin offs of PM, Kraft, MDLZ, and reinvesting dividends, the compounding has been up by many factors of 100Xs...and with low prices you can buy more; thank you
thebucketshop profile picture
As a long time investor in MO, this is how I think this plays out.

The bear problem with MO is that they can generate earnings growth when the stock price gets cheap enough. This is a combination of buybacks, normal cost management as well as modest growth in their smaller business units. There are other companies in the same situation: can't generate revenue growth.

The excess cash flow can buyback 2% of the shares right now. This assumes that the company can keep net revenue flat by the measures mentioned above.

Right now of course, there is no such commitment to do this as the previous guidance has been pulled.

But the main point (over the longer term) remains that as the stock gets cheaper it becomes less likely the dividend will actually be cut.
arthur_bishop1972 profile picture
Makes me wonder if the reasons the pps is falling are b/c of no buyback and no guidance atm. The dividend is covered without issue, and falling volumes have slowed to about 5% (not including pantry loading), debt rating recently improved, yield over 9%, etc. This is a great value with a fantastic dividend.
smoke em if got you got em
If you ain't got em, bum em off your squad leader...
I think MO was planning for the future with its purchase of vape device, marijuana company, and interest in LXRP to convert the canaboid oil to water soluble form for vaping. Just too aggressive in the timing, possibly, but has the foundation to support a whole new generation of consumables. Tobacco, alcohol, and marijuana...all vices covered.
Not all.
I'm just adding to the position. It goes lower? Fine. I will be adding even more.
One of the BEST stocks of ALL time baby. They sell a product that is so addicting its not even funny. People on their death bed still crave a smoke! Buy it and hold it for life, will it to your kids.
Tuco's Child profile picture
btm02sf profile picture
My wife is a nurse. She told me a few days the story of an old patient (no names or other personal details disclosed, in case you wonder) who had lungs surgery due to cancer. Believe it or not, all he cared after the surgery before going home was if the doctor will allow him to smoke again. He told my wife “damn the doctor who won’t allow him to smoke again”. This is how addicted he was. It very unfortunate, but very true. And, this is true for the vast majority of smokers. I know many and none of them will even think twice before buying another pack. Even when I am telling them that they put pennies in my pocket (all of them smoke Marlboro). I travelled through several countries in Europe in the recent years. Smoking is high in many places - Paris has garbage trucks that show mountains of cigarette buts at the rate of 150 tons a year (that’s what the written text was saying). Who is thinking that smoking is going down at any rate to endanger the tobacco companies is wrong. And, with RRPs such as IQOS exploding in use across the world, nicotine is morphing itself into another delivery mechanism. It is only a matter of time until RRPs will becomes the norm in the US. I have been buying MO and PM since 2005 and respectively 2008, month in and month out, regardless of market, price or quarterly reports. $3-500 at a time with the occasional bonus kicking in. DRIP-ed all divs. Last year we got about $8000+ in divs. All reinvested. All from MO and PM. This year, the current prices with additional monthly purchases and divs I expect that the divs will come in at about $9500, again all going back. I am only 55. By the time I retire in 6-7 years I hope to have a healthy dose of dividends in the range of about $15K more or less. Tobacco companies will be here and making money long after we are all gone.
Its a nice idea, but i will adhere to the technical saying “dont catch a falling knife”, while many fundamentalists will reply that i dont have a crystal ball, i can see what the last weeks trend was, when it stops dropping and reverses on reasonable volume then it could be a buy. The dividend only matters if you dont loose your principal.
dude...the dividends matters if your never gonna sell....which is a great idea. why would you sell MO?
Interesting idea but with extending that to all stocks you would miss out on any possible shorts and limit your overall potential. There are plenty of other vehicles with high yield besides stocks which have more of a guarantee payout. So in answering your question i suppose the reason is my strategy to bankroll and gambling likely differs from yours.
what if they cut the dividend by 66%? Think Shell...
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