Why I Own the Best Stock of the Last 50 Years

In the video below you'll see that we are still bullish on Altria today, but this is just the opinion of two people. There is an intense debate raging about whether Altria still a buy today. To find out whether everyone's love-to-hate dividend stock is a savvy investment choice or a hazard to your portfolio, simply click here now for access to The Motley Fool's new premium research report on the company.

Austin Smith: So, Morgan, I was going through your holdings the other day and I noticed you own both Altria (NYSE: MO  ) and Philip Morris (NYSE: PM  ) . I'm a Philip Morris shareholder, so I think we probably have a similar thesis here, but I just wanted to chat with you about those holdings.

I held off on the Altria purchase, so I'm wondering what made you jump in and decide to buy both?

Morgan Housel: So I have owned Philip Morris [and] Altria for about a decade now. The long-term story that really made me want to own Altria, Altria was actually the single best stock to own from 1950 to 2003. It beat Wal-Mart, it beat Microsoft. It's the single best stock to own.

What's interesting, during that time frame, is that cigarette smoking rates have actually been declining for most of that period.

Austin: Right.

Morgan: So why has Altria done so well when their business is constantly shrinking? It's because there's so much worry surrounding the stock, between them getting sued time after time and again. It ends up being a "sin stock" that people don't want to own for moral reasons, which I totally respect. That has kept valuations pretty low. When you have low valuations, that makes the dividend yield high.

Austin: Right.

Morgan: So you have this constantly high dividend yield on Altria, consistently higher than most other dividend stocks you can buy. If you reinvest that dividend over and over again, the compounding impact from that, measured over several decades, just goes up and up and up.

Austin: Right.

Morgan: You have this company that is perpetually in decline, with stock that is just compounding on itself over and over again.

Austin: When I look at Altria, I see a company that has been remarkably nimble and resilient in the face of a tougher climate that they've operated in. They actually have a lot of great opportunities facing them today.

Now, that may seem strange, because they're just domestically focused. They still sell their same bread-and-butter tobacco products, but if you look at their smokeless tobacco products, they're actually growing volume quite a bit, and they actually realize wider margins than their traditional tobacco cigarettes.

This is a company that has been able to reinvent themselves and remain resilient in an environment that has been increasingly difficult. They pay out a great dividend, and of course that speaks to the power of dividends over the long run.

It's one of the reasons I own Philip Morris. Even though they have a slightly lower dividend, I like the international growth, and I see you're a shareholder too, so I'm guessing you bought them for the same reasons.

I think these are two tremendous companies that are deeply misunderstood. A lot of people say, "Smoking rates are declining. How can they possibly thrive?"

Morgan: People have been making that argument for 30-40 years now.

Austin: Exactly, and they've been proving them wrong. Altria's one of the few stocks that actually has a better compound annual growth rate than Warren Buffett himself.

Morgan: Right.

Austin: That's a rare feat.

Great, well, thanks for sharing somewhat on your Altria and Philip Morris ownership today.

Read/Post Comments (3) | Recommend This Article (6)

Comments from our Foolish Readers

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  • Report this Comment On December 18, 2012, at 3:04 PM, DoctorLewis4 wrote:

    Well done on your investing acumen. I just can't bring myself to buy a stock that contributes to so much illness and death. It's a free country though and I hope one day through personal choice these companies will be out of business.

  • Report this Comment On December 18, 2012, at 3:46 PM, chris293 wrote:

    Everything in moderation. If people could control themselves then they would learn that they don't have to kill themselves smoking. People who play sports know that smoking affects their ablilities to play well. There are many people and even companies that make a living off of telling people that they are helpless unless they buy or use their products or services. Bad thinking leads to bad results but good or better thoughts lead to better results. Self contol is the result of good thinking in the real world.

  • Report this Comment On December 19, 2012, at 9:00 AM, lngtrmcptlgns wrote:

    Morgan, this is a very basic question (I am full of these):

    should dividends and capital gains each grow/shrink in direct proportion to earnings (at least roughly and over a long time period)? So If earnings avg 8% annual growth over 30 years, dividends and price should grow at 8%?

    The reason I ask:

    I have been trying to find a financial calculator that will project for me a rough estimation of an income stream from a portfolio of "dividend growth stocks" (assuming certain initial investment, reinvestment of dividends, reasonable growth rate and length of time).

    That seems like a pretty reasonable thing for an investor to want to know in terms of retirement planning, right?

    Well, the only one I can find ( appears to totally ignore capital gains growing along with the dividend, which means when growing dividends are reinvested, you are getting more and more shares than you would if the price was growing at the same rate, which produces a resulting income stream that is way too big, right?

    Also, do you know of a site (or source) that can tell me how a specific stock (say, Pepsi) has performed over a section of its past history in these terms:

    if an investor had purchased X dollars of Pepsi Y years ago (and re-invested dividends) then... that holding would be worth A dollars today and producing an annual dividend stream of B dollars.

    I see examples like this given in various articles and would like to know where the figures come from.

    Thanks so much for all of your insights!

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