With the merger scuttled, for now anyway, I think the next couple of earnings announcements are going to dictate the amount of short-term pain. Reading the tea leaves of today's press release, I'm guessing -- guessing -- that full-year 2019 "real" earnings per share will be right about $3.50. (I ignore the nonsense adjusted EPS numbers they provide -- you can't pay dividends with adjusted earnings -- although I do think it is notable that they tightened the full-year guidance by *increasing* the lower end of the range.)
If $3.50 or thereabouts turns out to be the case, we're looking at a payout ratio of pretty close to, but not quite, 100 percent. I'd consider this a neutral / status quo / ongoing uncertainty case where the price just drifts around current levels, maybe drifting downward. If Q3 earnings are weak (especially in combination with continued negative headlines about JUUL, then low to mid $30s wouldn't surprise me. If Q3 earnings suggest anything north of $3.50 for the year, however, then I'd guess that the price would start to move up as folks calm down and pile in for the incredible yield.
Again, given today's updated guidance, I'm still pretty comfortable that we're looking at either the neutral or positive short-term path. (Actually, I'm leaning more toward the positive path, but don't want to set myself up for too much disappointment!) But as usual, my crystal ball is still in the shop, so all of these guesses are worth what you paid for them.
Longer term, I'm still very comfortable that this is an excellent entry point. This is still a huge company that generates a lot of cash. MO's payout ratio was 95 percent as recently as 2011. They'll navigate the regulatory and litigation issues with JUUL, perhaps even ending up owning the whole company or a majority of it. (And as I've said before, today's prices are reasonable even if they have to write off JUUL entirely.) They still have a lot of pricing power in their core products, and are planning around significant and accelerating decreases in old fashioned smoking rates.
I said I'd buy more in the $30s, and at this moment it is down to $39.50. Maybe I'll go see what I can get for selling a put or two...
Edited to add: Yeah, I wouldn't bet on big dividend raises the next year or two. They kind of got ahead of themselves with the two large raises in 2018. But unless earnings really crater, I'm confident they'll continue with small raises on schedule to maintain the streak.
If $3.50 or thereabouts turns out to be the case, we're looking at a payout ratio of pretty close to, but not quite, 100 percent. I'd consider this a neutral / status quo / ongoing uncertainty case where the price just drifts around current levels, maybe drifting downward. If Q3 earnings are weak (especially in combination with continued negative headlines about JUUL, then low to mid $30s wouldn't surprise me. If Q3 earnings suggest anything north of $3.50 for the year, however, then I'd guess that the price would start to move up as folks calm down and pile in for the incredible yield.
Again, given today's updated guidance, I'm still pretty comfortable that we're looking at either the neutral or positive short-term path. (Actually, I'm leaning more toward the positive path, but don't want to set myself up for too much disappointment!) But as usual, my crystal ball is still in the shop, so all of these guesses are worth what you paid for them.
Longer term, I'm still very comfortable that this is an excellent entry point. This is still a huge company that generates a lot of cash. MO's payout ratio was 95 percent as recently as 2011. They'll navigate the regulatory and litigation issues with JUUL, perhaps even ending up owning the whole company or a majority of it. (And as I've said before, today's prices are reasonable even if they have to write off JUUL entirely.) They still have a lot of pricing power in their core products, and are planning around significant and accelerating decreases in old fashioned smoking rates.
I said I'd buy more in the $30s, and at this moment it is down to $39.50. Maybe I'll go see what I can get for selling a put or two...
Edited to add: Yeah, I wouldn't bet on big dividend raises the next year or two. They kind of got ahead of themselves with the two large raises in 2018. But unless earnings really crater, I'm confident they'll continue with small raises on schedule to maintain the streak.