Long/Short Equity, Portfolio Strategy
Contributor Since 2012
The Altria Group (NYSE: MO) is the leading cigarette manufacturer in the United States, Despite a weak economy and stiff competition, the company has been doing fairly well with a 22 percent increase in revenue this past year. This is a significant number given that cigarette sales are down in the United States. In fact, consumption of tobacco in the American market has fallen to less than half that of Japan and Europe. But Altria has other tricks up its sleeve that more than compensate for tobacco products. Altria's holdings also include wine and beer, financial services, cigars and smokeless products. Analysts attribute the company's ability to maintain a steady growth and solid dividend production to its diverse holdings. In short, Altria has been able to compensate for lost tobacco revenue through diversification, something that nearest competitors Reynolds American (NYSE: RAI), and Lorillard (NYSE: LO) have been unable to do.
In March of 2007 Altria spun off its remaining stake in Kraft Foods to its shareholders. The spinoff strengthened the company by reducing debt and allowing Altria purchase as much as $40 billion worth of its shares. Then in March of 2008 Altria spun off Philip Morris International (NYSE: PM) giving PM shareholders shares of the now separate company as compensation for their lost revenues in Altria. The motive behind the spin offs was sound. Combined, the moves made Altria a smaller, more manageable and profitable company.
In addition, and shareholders love this, the company has increased its annual dividend 44 times in the last 46 years. In fact the company announced that the 2012 dividend ratio payout was 80 percent of adjusted earnings per share. 80 percent is a mighty nice reward to loyal investors and it still left Altria a nice chunk of cash to devote investments and projects, which should please Altria shareholders. In a market that has become known in the past few years for its inconsistency, investors find the solid performance of Altria a comfortable choice. The assurance of a return on their investments in the form very nice dividends has shareholders keeping their money right where it is for the long haul.
The company has a proven track record with investors and a sound business plan in place. So in spite of all of the issues confronting cigarette companies today, including tax hikes, health concerns, negative advertising, Altria has managed to maintain and even enhance a strong earnings platform by utilizing various business strategies in order to compensate for what might have been lost revenue. Analysts and investors like this stock and with good reason continue to stand behind it. Altria may not have the financial clout of a Google (NASDAQ: GOOG) or Apple (NASDAQ: AAPL) but it is a sound, reliable investment and is likely to stay so for the long-term.