Altria (MO +0.78%) is a hard stock to love, even if you are a dividend investor. And it probably isn't the type of company you'll want to own for the rest of your life. But as times get tough on Wall Street and Main Street, Altria has a lot to offer investors. And a big part of that is the stock's huge 7.2% dividend yield.
Here's why Altria could be a no-brainer buy in what has been a very turbulent April.
What does Altria do?
Altria's most important business is selling cigarettes. The company operates exclusively in North America, having spun off its foreign operations into Philip Morris International (PM +1.93%) a few years ago. Cigarettes are, effectively, a nicotine delivery method. Nicotine is addictive. As you might imagine, Altria tends to have a very loyal customer base.
Image source: Getty Images.
That remains true even though cigarettes are dangerous to one's health. And it remains true even though cigarette prices have been rising rapidly in recent years. Both of those facts are integral parts of the story given the downtrend in the number of cigarettes Altria produces and sells. This trend has caused the company to look for alternative tobacco/nicotine products to invest in. But the core cigarette business continues to generate huge amounts of cash flow thanks to the price hikes.
That's part of the reason Altria is attractive in April, as Wall Street hits some turbulence. And it is why the company will continue to be attractive if that turbulence spills over onto Main Street, perhaps precipitating a recession. In fact, during difficult times, cigarette smokers often smoke more.
The 7% yield gets you almost there
Altria is not for the socially conscious investor. It is also not a stock to buy and hold forever. There are very material negatives to consider here (ongoing volume declines being at the top of the list). But there are also short-term positives. Loyal customers are willing to pay higher prices, Altria has ample recurring cash flow to cover the dividend, and there's a chance that smoking will increase in the face of uncertainty.
From an investing standpoint, the big positive is the huge dividend yield, which is backed by a growing dividend. For starters, buying Altria means collecting quarterly dividend checks. That could help you asleep at night as the market goes through stomach-turning gyrations.
NYSE: MO
Key Data Points
But there's another factor to consider here. Investors generally expect stocks to provide a return of 10% or so over time. Altria's dividend yield is 7%, so you are getting nearly the expected market return from the dividend payment alone. Average annualized dividend growth in recent years has been hovering around 4%, which added to the 7% yield gives you 11%.
That isn't the same as the stock going up 11%, of course. But when the market is in a fragile state, it could still be a very comforting number to have in the back of your mind as you watch the market rise and fall in sometimes dramatic fashion.
Don't set and forget Altria
Altria today is best viewed as a short-term strategic investment. The company has very real problems that will not be easy to fix. Those aren't going to change even if cigarette demand temporarily improves because of a recession. That said, if you are looking for a safe haven today, Altria and its lofty dividend yield may be able to give dividend investors some short-term shelter in April.
