Monday, August 29, 2011

Altria Group (MO): High Dividend Growth Stock

Altria Group’s Board of Directors announced a fresh dividend hike over the past week. Owning shares of this company for several years has delivered a rising stream of dividend income to me, and an appreciation of the simple truths mentioned above. Check my analysis of the stock.

Altria Group, Inc. (MO), through its subsidiaries, engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. The company increased its quarterly distributions by 7.90% to 41 cents/share. This marked the 44th consecutive annual dividend increase for this dividend champion. Despite all the issues that tobacco companies have faced over the past decade, the increased regulation has created an environment which has helped deliver solid results for shareholders. While the number of smokers decreases each year, the increases in cigarette prices more than compensate for that. In addition, it is almost impossible for a new cigarette manufacturer to create a brand to compete with established players like Altria Group (MO). Despite all the gloom, the company has been the best performer in the S&P 500 over the past 50 years.

Investors, looking at the historical distributions of Altria since 2007, see a big dip in dividends. There is a rational explanation for this however - Altria spun off Kraft (KFT) in 2007 and Phillip Morris International (PM) in 2008. As a result, investors who purchased Altria (MO) stock at the end of 2006 would own shares of Altria (MO), Phillip Morris International (PM) and Kraft (KFT), all of which have increased distributions over the past 5 years. As a result, this investor would have received a rising stream of dividend income in each of the past 5 years since the spin offs began. Standard and Poor’s eliminated Altria from its list of dividend aristocrats in 2008, which was a move that is almost as wrong as reducing the rating of the US in recent weeks. The company’s shareholders didn’t suffer reduced dividend income, which is why the S&P’s move to boot Altria from the elite dividend index was highly suspect. This is the primary reason why I am mostly ignoring the dividend aristocrats index and focusing on the dividend champions index exclusively.

Full Disclosure: Long MO, PM, KFT

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This article was featured in the Carnival of Personal Finance #325

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