Although Altria (MO 0.12%) offered only a modest 5% increase when it raised its quarterly dividend payment to $0.84 per share over the prior $0.80 payout, it marked the 50th consecutive year the tobacco giant has raised its dividend.
Typically, a record like that would qualify a company as a Dividend King, a rarefied group of only 26 companies that have annually increased their dividends for 50 years or more.
However, because of spinoffs Altria has made over the years, the dollar amount paid hasn't always been higher from year to year, so for those who maintain the rolls, the tobacco company may not fully qualify. Investors, though, should still treat Altria as royalty.
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The best in the business
There's a good reason Altria remains a premier choice for income-seeking investors. It owns or helps control a portfolio of the most important tobacco brands:
- Marlboro cigarettes still command a near-50% share of the market.
- The Copenhagen and Skoal brands of smokeless tobacco control half of their market.
- It owns over a third of the leading electronic cigarette maker, Juul Labs, which has a 75% share of the market.
- It recently began selling the top-selling heated tobacco device, IQOS, after the Food and Drug Administration approved Philip Morris International's (PM 1.39%) application to introduce it into the U.S.
Although cigarettes and the e-cig market still have a pretty bumpy road ahead, there's good reason to think Altria can continue raising its dividend for years to come.
A cash-generating business
Cigarette smoking in the U.S. is in a secular decline. The Centers for Disease Control and Prevention say that where 42% of the adult population smoked 50 years ago, just 14% do today. Yet due to nicotine's addictive qualities, current smokers willingly pay up for the privilege.
Higher prices from tax increases and hikes initiated by tobacco companies to bolster profits have allowed Altria, British American Tobacco's Reynolds-American division, and other cigarette companies to continuously expand earnings.
Altria has already raised prices twice so far this year, and analysts are expecting a third hike. The tobacco company says its full-year earnings for 2019 will be in a range of $4.15 to $4.27 per share, a growth rate of 4% to 7% over last year's $3.99 per share.
An evolution in tobacco
Despite the seeming ease with which tobacco companies generate profits, their history has been tumultuous. The Marlboro Man, for instance, faded from TV screens in 1970 when tobacco advertising was banned on the medium; bans on smoking on airplanes occurred in the 1990s; smoking indoors in most public places came in the 2000s, and in most public parks in the past five years or so.
The industry was battered by lawsuits throughout the 1990s and a Master Settlement Agreement was reached in 1998 that had the industry giants contribute hundreds of billions of dollars to settle dozens of Medicaid lawsuits. The progeny of those lawsuits still play out in state courts today.
Altria segregated its global business from its domestic one by spinning off Philip Morris International in 2008. The two remain close, though, and several years ago signed marketing agreements for reduced-risk products, which led to Altria selling Philip Morris' IQOS under the Marlboro banner in the U.S.
New regulations on e-cigs could make life tough for another investment Altria made: its $12.8 billion stake in Juul Labs. The leading e-cig maker could find itself out of business if the FDA doesn't approve its pre-marketing application that's due for submission early next year.
Altria also has a small stake in Anheuser-Busch InBev; owns a modest winery, the Ste. Michelle Wine Estates; and last year took an ownership interest in marijuana producer Cronos Group.
More to come
Through all the upheavals, Altria has paid its dividend consistently, and on several occasions issued shareholders a special dividend -- or, like last year, raised its dividend twice by using the windfall provided by tax reform.
The most recent dividend hike was actually Altria's 54th increase in the last 50 years, though spinning off businesses like Kraft Foods and Philip Morris International may have hurt its ability to ascend to the throne of nobility and become an official Dividend King.
There is obviously risk to Altria's business, but it has been a dependable dividend payer for decades, and the latest hike to its payout indicates the tobacco giant sees potential growth for years to come.
