Dividend investors know just how strong tobacco giant Altria Group (MO +0.25%) has been in its history. Altria has delivered amazing returns to its shareholders over the past 50 years, and dividends have made up a huge portion of the company's overall total gains.
Altria has also put together an impressive track record of dividend growth, making more than 50 dividend increases over the past five decades. Yet the tobacco company faces new challenges, such as the threat of nicotine regulation and the global consolidation of its primary competitor in the U.S. cigarette market. Could 2018 bring an end to one of the most impressive runs among dividend stocks in the history of the stock market? Below, we'll take a closer look at how Altria has done lately and whether dividend investors should be concerned.
Dividend stats on Altria Group
|
Current Quarterly Dividend Per Share |
$0.66 |
|
Current Yield |
4% |
|
Number of Consecutive Years With Dividend Increases |
48 years* |
|
Payout Ratio |
35% |
|
Last Increase |
August 2017 |
Data source: Yahoo! Finance. Last increase refers to dividend announcement. * Takes into account adjustments for spinoffs.
What's happened with Altria's dividend lately?
2017 was a good year for Altria investors who rely on the tobacco stock for dividend income. In August, the company made its typical dividend increase, raising the amount it pays every quarter from $0.61 to $0.66 per share. That 8% increase was very much in line with what Altria has delivered to its investors going back for years into the past.
One reason why Altria doesn't get full credit for its status as a dividend powerhouse is that it has made numerous spinoffs of various businesses over the course of its history. That has resulted in nominal reductions in the per-share dividends that Altria has paid, but when you consider those dividends in the context of the remaining value of the business left over after each spinoff, the tobacco company has treated its shareholders well.
MO Dividend data by YCharts.
As an example, take Altria's spinoff of Philip Morris International (PM +1.55%). When you look at Altria's long-term dividend history, it looks like Altria suffered a huge dividend cut, and indeed, its per-share payout fell from $0.75 to $0.29. Yet Philip Morris represented about two-thirds of the value of the entire company, and so for Altria to pay more than the roughly one-third proportional amount after the spinoff was still a victory for shareholders. If you give Altria credit for that spinoff as well as similar moves in prior years, then the company's 2017 payout boost lengthened its dividend increase streak to 48 years.
What's next for dividend investors holding Altria stock?
Earnings make dividends possible, and Altria's earnings growth remains solid. The current payout ratio of just 35% is extremely misleading, however, because it reflects in large part a one-time gain from the sale of Altria's stake in SABMiller. Once that gain falls off Altria's trailing earnings figures, investors should anticipate that the payout ratio will return to the company's target range of roughly 75% to 80%.
Price increases have thus far been adequate to offset declines in cigarette sales volumes, and that has helped support Altria's long-term upward dividend trend. The success of Marlboro in cigarettes, Copenhagen in smokeless tobacco, and MarkTen in e-cigarettes has been impressive. Altria hopes that it will be able to add heated-tobacco products to its lineup in the near future, pending approval from the U.S. Food and Drug Administration of Philip Morris International's application to market its iQOS device in the U.S. market.
Image source: Altria.
Currently, Altria anticipates that it should be able to sustain a roughly 8% to 10% rise in earnings over the long run, and that makes it likely that the tobacco giant will keep a similar dividend strategy as it has used in recent years. Accordingly, Altria shareholders should expect a dividend increase in the second half of 2018, with a boost of $0.05 or $0.06 per share bringing the new payout to $0.71 or $0.72 per share. With the potential to reach the 50-year mark within a couple of years, Altria has a lot of incentive to keep its dividend streak alive for the long haul.
