Both Altria Group (MO 1.61%) and Anheuser-Busch InBev (BUD 2.24%) have long been bountiful dividend providers for investors. With the tobacco titan and beer king currently yielding 4.1% and 3.4%, respectively, that remains the case today.
But which of these dividend stalwarts is the better buy? Let's consider how they stack up in five key areas.
Image source: Getty Images.
Moat
Oddly enough, the regulations designed to discourage smoking help to widen Altria's economic moat by limiting the amount of advertising other cigarette companies can do. This makes it highly improbable that upstart tobacco businesses will be able to wrestle significant market share away from Altria's popular brands.
In contrast, Anheuser-Busch faces an onslaught of competition from thousands of craft brewers. New brands are popping up all the time. And while no individual craft brewer can overthrow the king of beers, collectively, they do represent a legitimate threat to AB InBev's profits.
Therefore, I'd argue that, between these two dividend giants, Altria has the wider moat.
Advantage: Altria
Financial fortitude
Let's now take a look at some key metrics to see how Altria and AB InBev stack up financially.
|
Metric |
Altria |
AB InBev |
|---|---|---|
|
Revenue |
$19.5 billion |
$52.4 billion |
|
Operating income |
$9.4 billion |
$14.9 billion |
|
Operating cash flow |
$4.4 billion |
$11.7 billion |
|
Free cash flow |
$4.2 billion |
$6.5 billion |
|
Cash |
$2.6 billion |
$10.3 billion |
|
Debt |
$13.9 billion |
$119.5 billion |
DATA SOURCE: MORNINGSTAR.
Both businesses are highly profitable with bountiful free cash flows. Yet after its $100 billion megamerger with SABMiller, AB InBev now has nearly 10 times as much net debt as Altria. That gives the tobacco giant the edge here.
Advantage: Altria
Growth
Wall Street expects AB InBev to grow its earnings per share at an annualized rate of more than 22% over the next half-decade, driven by its "premiumization" strategy -- in which it more aggressively promotes its higher-priced brands -- and an additional $1.5 billion in cost synergies from its merger with SAB. During that same time, by contrast, Altria's EPS is projected to rise only by about 8% annually, fueled mostly by price increases and costs cuts.
Advantage: Anheuser-Busch InBev
Valuation
No better-buy discussion should ignore the issue of valuation. Let's compare a few popular formulas, including the price-to-earnings and price-to-earnings-to-growth (PEG) ratios.
|
Ratio |
Altria |
AB InBev |
|---|---|---|
|
Trailing P/E |
8.58 |
58.58 |
|
Forward P/E |
18.18 |
23.13 |
|
PEG |
2.46 |
1.23 |
DATA SOURCE: Yahoo! Finance.
Anheuser-Busch's forward P/E is about 27% higher than that of Altria. However, if we factor in their vastly different projected EPS growth rates, AB InBev's stock actually looks significantly less expensive, with a PEG ratio that's half that of Altria.
Advantage: Anheuser-Busch InBev
Additional factors
With this better buy analysis all tied up after four rounds, let's look at some additional criteria that may help you decide which one is better for your portfolio.
Some investors may object to investing in certain industries. So-called "sin stocks" -- such as those in the tobacco and alcohol industries -- often fall into this category. So please, if it makes you uncomfortable to invest in a cigarette maker or a beer brewer, then by all means stay clear of both these businesses. Or, if (for example) tobacco is a no-go for you, but you are comfortable with alcohol, the choice may get much easier.
Secondly, I should note that Altria actually owns about 10% of Anheuser-Busch. So if you decide to buy some shares of Altria, you'll also own some of AB InBev, too.
Advantage: You decide
Ultimately, you'll have to decide which of these factors is more important to you. If you're a growth-at-a-reasonable-price type investor, then Anheuser-Busch InBev is probably the way to go. If you appreciate financial strength and a nearly unassailable competitive position, then Altria is likely the better choice. Either way, you'll be buying a dominant business that should reward you with steadily rising dividend income in the years ahead.
