07-25-2013, 04:29 PM
I rarely talk about Altria (MO), because (other than reinvesting) I haven’t bought a single share since December of 2008. I bought 500 shares back then at an average price per share of $16.09, including commissions. I spaced out on reinvesting for a year or two, but then began reinvesting all of my dividends. With reinvestment, I now own 562 shares. It has been a beautiful core holding for me, and – while I of course monitor it, like all of my holdings – I don’t really give it too much thought.
I will not be buying any more shares of MO with new money any time soon because it is already a heavy chunk (perhaps too heavy) of my dividend growth portfolio. But I recently updated my master spreadsheet that includes all of the stocks that I both hold and watch, and my eye landed on good old Altria, sitting up there at the top of the list, just like it has month in and month out for years.
Even at today’s prices, MO gets the highest score of all the stocks that I watch. That is, it features the best combination of factors: (1) A huge and reliable streak of raising the dividend – like clockwork, they will declare an increased dividend in August, the 45th annual increase in a row. (2) An excellent starting yield – right around 5 percent, if you count on the coming increase. (3) A sustainable payout ratio. Yes, it is high, around 80 percent, but the company has 80 percent as an explicit target payout ratio, so as long as earnings are moving in the right direction, I do not penalize them for the high ratio. (4) A reasonable P/E ratio, around 17. (5) Growing earnings. If this year’s estimates hold, it will be about a 17 percent increase over last year, with a five-year average increase around 10 percent. Not gangbusters, but not too shabby for a mature company like Altria. (6) Growing dividends. 7 to 8 percent increases every year for the past few years. I’m looking for about the same to be announced next month. (7) The intangibles: well, they operate a fairly simple business, sell an addictive product, and bring in reams of cash each and every quarter. Worry all you want about declining smoking rates, taxes, packaging laws, regulations, litigation, etc. etc. etc. These concerns have been front and center for tobacco companies for decades – they are not new headwinds. And MO has thrived in the face of all of them.
So, although I don’t mention it much, I thought Altria deserved a thread of its own.
I will not be buying any more shares of MO with new money any time soon because it is already a heavy chunk (perhaps too heavy) of my dividend growth portfolio. But I recently updated my master spreadsheet that includes all of the stocks that I both hold and watch, and my eye landed on good old Altria, sitting up there at the top of the list, just like it has month in and month out for years.
Even at today’s prices, MO gets the highest score of all the stocks that I watch. That is, it features the best combination of factors: (1) A huge and reliable streak of raising the dividend – like clockwork, they will declare an increased dividend in August, the 45th annual increase in a row. (2) An excellent starting yield – right around 5 percent, if you count on the coming increase. (3) A sustainable payout ratio. Yes, it is high, around 80 percent, but the company has 80 percent as an explicit target payout ratio, so as long as earnings are moving in the right direction, I do not penalize them for the high ratio. (4) A reasonable P/E ratio, around 17. (5) Growing earnings. If this year’s estimates hold, it will be about a 17 percent increase over last year, with a five-year average increase around 10 percent. Not gangbusters, but not too shabby for a mature company like Altria. (6) Growing dividends. 7 to 8 percent increases every year for the past few years. I’m looking for about the same to be announced next month. (7) The intangibles: well, they operate a fairly simple business, sell an addictive product, and bring in reams of cash each and every quarter. Worry all you want about declining smoking rates, taxes, packaging laws, regulations, litigation, etc. etc. etc. These concerns have been front and center for tobacco companies for decades – they are not new headwinds. And MO has thrived in the face of all of them.
So, although I don’t mention it much, I thought Altria deserved a thread of its own.
