Jan 31, 2014: Bought 75 shares of MO at $35.29 per share.
Altria Group Inc. (MO) was founded in 1919 and is headquartered in Richmond, Virginia. MO, through its subsidiaries, engages in the manufacture and sale of cigarettes, smokeless products, and wine. One wholly owned subsidiary (Phillip Morris Capital Corporation) maintains a portfolio of leveraged and direct finance leases. In March 2008, MO spun off the subsidiary Phillip Morris to protect it from litigation in the United States. Later, Phillip Morris became a separate entity called Philip Morris International, legally based in the U.S. and listed on the NYSE under the symbol PM.
MO is a Dividend Champion with an impressive 45-year streak of dividend increases. It pays quarterly dividends in January, April, July, and October. My starting Yield on Cost is 5.44%.
Not accounting for dividends, MO easily outpaced the performance of the S&P 500 over the last 10 years, nearly tripling its performance:
Over the last 10 years, MO has grown its dividend steadily. It is clear that MO uses a significant percentage of its earnings per share to pay dividends:
Analysis of MO
Available fair value estimates for MO range from $32.00 (Morningstar) to $53.31 (Dividend Discount Model). MO trades at a discount of 8.39% to the median of these estimates.
The following table provides some key statistics for MO:
The Chowder Dividend Rule requires that the sum of a stock's dividend yield and its 5-year dividend growth rate exceed 12%. For MO, the sum is 14.21%. Additionally, the TTM P/E and Forward P/E ratios are both less than 20.
MO falls short of the following of my selection criteria:
- EPS% payout < 40% (75%) or FCF% payout < 50% (356%)
- Price/Earnings to Growth (PEG) ratio < 2 (2.01)
- 5-year dividend growth rate is at least 10% (9.21%)
- Debt to Equity ratio < 50% (374%)
Based on these statistics, MO ears 5 stars out of a possible 7: (*******)
Other ratings for MO
MO is my first purchase this year. As explained earlier this month, I'm shifting focus to balancing my portfolio holdings across all 10 sectors in my watch list. With this purchase, I'm adding a second holding in the Consumer Staples sector.
MO is a popular stock in many dividend growth portfolios, mainly for its exceptional yield and solid dividend growth. The company's impressive portfolio of tobacco and wine brands helps to maintain strong business momentum and to generate consistent profits.
MO is experiencing challenges due an unfavorable tax environment and anti-tobacco campaigns. Globally, demand for cigarettes is declining and new product and marketing regulations are expected for smokeless tobacco products. This could adversely impact a large percentage of MO's business.
The e-cigarette market provides a promising opportunity for companies in the tobacco industry. Last year, sales in this segment totaled about $1 billion and is expected to grow substantially over the next few years, by a compound annual growth rate of as much as 31% between 2014 and 2018. MO has already entered the e-cigarette market, expected to be a turnaround product for companies in the tobacco industry.
MO consistently returns value to shareholders. The company has a long history of raising its dividends, the latest being a 9.1% increase in June 2013. In Aug 2013, MO increased its share buyback program by $700 million for a total share repurchase authorization of $1 billion before the end of 2013.
75 shares of MO represent $144 of expected annual dividend income, which increases DivGro's projected annual dividend income to $3,026.58.
MO is the 25th dividend stock purchase for DivGro.
Full Disclosure: Long MO