Altria (MO 3.60%) just reported its earnings for the first quarter of 2023, and it seemed to confirm the stock's unstoppability. Despite negative revenue and net income growth, the stock moved higher in the trading session following the April 27 report.
This is notable since the government and society have actively discouraged tobacco use for decades. And the massive settlements against the company continue as it paid $462 million to six states, not including a more recent settlement in a $100 million case filed by the state of Minnesota.
Both of the settlements occurred after the end of the quarter. However, the question for investors is whether the stock can continue to profit investors amid these considerable tailwinds. Let's take a closer look.
NYSE: MO
Key Data Points
The Q1 report
During Q1, net revenue came in at $5.7 billion, a 3% decline from year-ago levels. Lower shipment volume and higher promotional costs led to a drop for which higher prices did not completely compensate.
Moreover, net income fell 9% to just under $1.8 billion as a rise in non-corporate expenses and losses from investments in equity securities further weighed on income. Despite those declines and the Juul settlement, the company still forecasts diluted earnings-per-share (EPS) growth between 3% and 6%.
The state of Altria's stock
Admittedly, the positive guidance regarding a multimillion-dollar settlement should not surprise investors. The health effects of smoking have plagued the company's outlook since the Surgeon General warned of the impact of tobacco use in 1964. At the time, Altria (then known as Philip Morris) sold at a split-adjusted price of $0.13 per share.
Nonetheless, Altria stock has risen more than 36,000% since that report. That increase occurred despite the billions of dollars in settlements the company paid due to the millions of deaths attributed to tobacco and its products' addictive qualities.
Still, those stock gains may look like an occurrence of the past. Over the last five years, its share price fell 14%; to find positive stock price growth, one has to go back nearly 10 years.
Additionally, Altria's legal troubles and settlement claims have not deterred investors looking for high dividend yields. Today's dividend, now $3.76 per share annually, yields a cash return of 8.4%.
At first glance, that may appear too good to be true, and such a yield may signify an issue for a dividend stock. Still, investors should remember that most observers consider Altria a "sin stock," and the tobacco stock may pay that generous dividend to attract investors.
Despite that high return, the payout has risen every year since 2009. The last dividend cuts came from the spinoffs of Kraft (now part of Kraft Heinz) in 2007 and Philip Morris International in 2008, where they received shares of the new companies to compensate for the lost dividend income. Given this payout, some might consider the dividend the best reason to own Altria stock.
Should I buy Altria stock?
Considering its current state, Altria looks like a buy for dividend investors only. While it has a history of prospering despite tobacco's reputation and the massive legal settlements it paid, the stock has delivered an underwhelming performance in recent years. And with the falling tobacco revenue and lawsuits involving Juul, it lacks obvious growth avenues.
The remaining reason to own Altria is the dividend, which pays a high return and continues to grow. Although the company's troubles could eventually affect Altria's ability to fund the payout, the company has a history of finding growth amid tremendous headwinds and could do so again. That resilience may continue to bode well for the stock as it seeks other growth avenues.
