Austin Smith: So, Morgan, I was going through your holdings the other day and I noticed you own both Altria (NYSE:MO) and Philip Morris (NYSE:PM). I'm a Philip Morris shareholder, so I think we probably have a similar thesis here, but I just wanted to chat with you about those holdings.
I held off on the Altria purchase, so I'm wondering what made you jump in and decide to buy both?
Morgan Housel: So I have owned Philip Morris [and] Altria for about a decade now. The long-term story that really made me want to own Altria, Altria was actually the single best stock to own from 1950 to 2003. It beat Wal-Mart, it beat Microsoft. It's the single best stock to own.
What's interesting, during that time frame, is that cigarette smoking rates have actually been declining for most of that period.
Morgan: So why has Altria done so well when their business is constantly shrinking? It's because there's so much worry surrounding the stock, between them getting sued time after time and again. It ends up being a "sin stock" that people don't want to own for moral reasons, which I totally respect. That has kept valuations pretty low. When you have low valuations, that makes the dividend yield high.
Morgan: So you have this constantly high dividend yield on Altria, consistently higher than most other dividend stocks you can buy. If you reinvest that dividend over and over again, the compounding impact from that, measured over several decades, just goes up and up and up.
Morgan: You have this company that is perpetually in decline, with stock that is just compounding on itself over and over again.
Austin: When I look at Altria, I see a company that has been remarkably nimble and resilient in the face of a tougher climate that they've operated in. They actually have a lot of great opportunities facing them today.
Now, that may seem strange, because they're just domestically focused. They still sell their same bread-and-butter tobacco products, but if you look at their smokeless tobacco products, they're actually growing volume quite a bit, and they actually realize wider margins than their traditional tobacco cigarettes.
This is a company that has been able to reinvent themselves and remain resilient in an environment that has been increasingly difficult. They pay out a great dividend, and of course that speaks to the power of dividends over the long run.
It's one of the reasons I own Philip Morris. Even though they have a slightly lower dividend, I like the international growth, and I see you're a shareholder too, so I'm guessing you bought them for the same reasons.
I think these are two tremendous companies that are deeply misunderstood. A lot of people say, "Smoking rates are declining. How can they possibly thrive?"
Morgan: People have been making that argument for 30-40 years now.
Austin: Exactly, and they've been proving them wrong. Altria's one of the few stocks that actually has a better compound annual growth rate than Warren Buffett himself.
Austin: That's a rare feat.
Great, well, thanks for sharing somewhat on your Altria and Philip Morris ownership today.
Austin Smith owns shares of Philip Morris International. Fool contributor Morgan Housel owns shares of Altria Group and Philip Morris International. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.