Blending value investing and income investing can be an effective strategy in the long run. This is because value investing (in theory) limits potential downside. And while you wait for the market to warm up to your investment holdings, you can collect generous dividends.
Altria Group (MO 1.45%) and Williams-Sonoma (WSM -1.34%) are off their 52-week highs by 17% and 30%, respectively. Here is why their recent pullbacks could make for great buying opportunities for patient dividend investors.
1. Altria Group: The leading U.S. pure-play tobacco company
Generating $20.7 billion in revenue net of excise taxes in 2022, Altria Group is the largest tobacco company with operations solely in the U.S. The bulk of this revenue was generated from its Marlboro premium cigarette brand, which held over 40% of the total U.S. cigarette retail share (42.5% as of Dec. 31). Combining this with its other cigarette brands, Altria commanded 47.9% of the overall U.S. cigarette retail market in 2022.
Beyond its dominance in the U.S. cigarette retail category, Altria also accounted for nearly half (46.4%) of the total U.S. oral tobacco products retail share in 2022. This is thanks to brands like Copenhagen smokeless tobacco and On! oral nicotine pouches.
The company recently strengthened its outlook by completing a $2.8 billion acquisition of Njoy Holdings. In the deal, Altria gained Njoy Ace, the only pod-based e-vapor product approved by the U.S. Food and Drug Administration. This moves the company one step closer to executing its goal of "moving beyond smoking." That's why over the medium term, Altria's non-GAAP (adjusted) diluted earnings per share (EPS) will likely grow at a mid-single-digit annual rate.
Altria's current dividend yield of 8.4% is more than five times the S&P 500 index's 1.6% yield. And with the dividend payout ratio positioned to come in at 76% in 2023, the whopping dividend appears to be at low risk of being cut anytime soon. Finally, the stock's forward price-to-earnings (P/E) ratio of 8.6 is far lower than the tobacco industry's average forward P/E ratio of 14.8. This could translate into a meaningful upside in the years ahead, as shareholders collect a sizable dividend each quarter.
Image source: Getty Images.
2. Williams-Sonoma: A high-end retailer with big growth potential
With brands such as Pottery Barn, West Elm, and Mark & Graham, Williams-Sonoma is an established high-end player in the fragmented home retail space. Despite generating $8.7 billion in total revenue in 2022, the company's share of the $830 billion global home market was just 1%.
As the company points out, capturing just a 3% share of this market would triple its revenue base. But how does Williams-Sonoma plan on accomplishing this objective? For one, it plans to play to its strengths and expand into the business-to-business market, selling to hospitality, retail, and healthcare and wellness companies. This accounts for approximately $80 billion of its total global addressable market opportunity. It also plans to implement a capital-light franchise model to expand its global footprint, and with it, market opportunities. This is why analysts believe that the company's earnings will grow beyond its current fiscal year.
Williams-Sonoma's 3.1% dividend yield is reasonably attractive, nearly double the S&P 500 index's 1.6%. With the dividend payout ratio set to be around 26% for the current fiscal year, the payout is quite sustainable as well. Best of all, shares of Williams-Sonoma can be purchased at a low forward P/E ratio of 8.2 -- well below the average forward P/E in the specialty retail industry of 14.9.
