Altria raised its quarterly dividend by 14.30% to 80 cents/share. This was the second dividend increase this year, after the 6.70% raise in March.
This dividend increase reflects Altria’s intention to return a large amount of cash to shareholders in the form of dividends and is consistent with Altria’s dividend payout ratio target of approximately 80% of its adjusted diluted earnings per share. Altria has increased its dividend 53 times in the past 49 years.
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.
It is impressive to see how the company, which distributed almost all of its profits back in the form of dividends, is able to grow earnings per share over time. Between 2008 and 2017, Altria managed to boost its earnings per share from $1.45 to $3.39. The company is expected to earn $4.01/share in 2018. This means that Altria has a forward dividend payout ratio of roughly 80%.
During the same time, the annual dividend went from $1.22/share in 2008 to $2.54/share in 2017. The forward annual dividend payment stands at $3.20/share.
I find Altria to be attractively valued today at 14.70 times forward earnings and a dividend yield of 5.40%.
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