It's a big month for Altria Group (MO +2.67%) and its shareholders. The company behind Marlboro cigarettes and smokeless brands including Copenhagen and Skoal has put up steady results this year, thanks mostly to these strong brands. In addition, Altria Group has a highly diversified business, with a wine business, and a stake in brewing company SABMiller plc (NASDAQOTH: SBMRY) to boost results.
Altria's success this year allowed it to, once again, pass along a strong dividend increase to shareholders. Moreover, Altria's stake in SABMiller is serving as a catalyst, now that there's talk of a major beer merger.
Here's what Altria shareholders need to know this month.
Strong performance keeps on rolling
Altria measures its performance with adjusted earnings per share. This differs from traditional GAAP earnings per share because it excludes things like asset impairments, acquisition costs, and litigation items. These are non-recurring items that are not expected to have a meaningful effect on continuing operations.
On this basis, Altria's performance has been strong so far in 2014. Altria produced 5% growth in adjusted earnings per share during the first half. This is due mostly to effective cost controls, the benefits of share buybacks that reduce shares outstanding, and solid growth in its key brands. To reflect these factors, management expects 7%-9% growth in adjusted EPS for the full year.
Because of this success, Altria was able to increase its quarterly dividend by 8% to shareholders of record as of Sept. 15. Altria's new annual dividend of $2.08 per share represents a solid 4.7% yield at Tuesday's closing stock price. The company has a tremendous track record of raising its payout over time. In fact, Altria has now increased its dividend 48 times in the past 45 years.
Going forward, there's plenty of reason to think Altria can hit its full-year earnings forecast and continue to provide compelling dividend increases.
Altria's forward catalysts
Recently, it came to light that some major beer companies might be on the verge of a merger. Anheuser Busch Inbev SA (BUD +1.51%) is rumored to be lining up financing necessary to pursue a buyout of SABMiller. This would represent the world's two largest brewers joining forces.
The reason why this matters to Altria is because Altria owns a 27% stake in SABMiller. Based on SABMiller's recent market value, Altria's stake is worth approximately $25 billion. Were Anheuser Busch to pursue an acquisition, SABMiller could command a significant takeover premium, which could result in a significant, multibillion-dollar payout for Altria.
In addition, Altria has the opportunity for organic growth, as well. It's delving headfirst into e-cigarettes, which is an exciting opportunity that looks to be the first true growth catalyst the tobacco sector has seen in some time.
After successful test results in two states, Altria is rolling out its MarkTen electronic cigarette product nationally, and believes its technology separates it from the competition. To supplement its position, Altria also acquired Green Smoke's e-vapor business for $110 million. Altria has made significant investments in this product category, and should realize significant results if growth continues as expected.
While Altria's e-cig business is still a fledgling operation, it should be able to carve out a significant market share position for itself thanks to its world-class distribution capabilities and brand strength.
The Foolish takeaway
This is a big month for Altria and its investors. It recently announced a solid dividend increase, which reflects its operating success. In addition, Altria could receive a hefty financial windfall if brewer SABMiller is acquired by larger rival Anheuser Busch Inbev, as rumors are suggesting. That, combined with continued growth in Altria's existing brands, as well as in new product categories such as e-cigs, would make it very likely Altria will continue to reward shareholders for a long time to come.
