Many investors who purchase Altria Group (NYSE: MO) stock are not seeking rapid share price increases. The stock has consistently lagged behind the S&P 500 for years. However, the dividend is a different story. Altria is a top-notch dividend stock with a significant yield and a history of increasing payouts for over five decades.
This year, the Dividend King has shown signs of improvement. The stock recently reached over $56, its highest price since early 2022, before falling back to around $50.
This dip could present an ideal opportunity for investors looking for double-digit annual returns.
Steady. Reliable. Slow.
Many investors consider tobacco companies as traditional players in the stock market. Smoking rates in the U.S. have been declining for years, and the harmful effects of tobacco are well-known. Altria, a company selling cigarettes, chewing tobacco, and other nicotine products in the U.S., still generates most of its revenue and earnings from cigarette sales, with Marlboro being its primary brand.
Despite the industry’s challenges, the addictive nature of nicotine and regulatory hurdles have allowed Altria to raise prices per pack steadily, offsetting the decline in cigarette sales. This, along with share buybacks, has generally increased Altria’s free cash flow per share.
Altria is not a high-growth company, with earnings increasing at low single-digit rates. However, it continues to deliver consistent growth. Analysts project a 3% annual earnings growth for the next few years.
Not a trap for yield
While a company’s management can decide dividend payments, the dividend yield also depends on the stock price. High yields may attract investors but could be risky if the company struggles to maintain payouts, resulting in a dividend cut. These high-yield, low-quality stocks are often referred to as yield traps.
Altria’s high dividend yield reflects its slow earnings growth. However, the company’s payout is secure, with about 80% of earnings allocated to dividends. Altria’s unique business model requires minimal investment, allowing it to distribute more profits as dividends.
Potential for market-beating returns
While Altria has underperformed the market in recent years, it could become a top-performing stock again. With an 8.1% dividend yield and expected earnings growth, Altria could offer double-digit annual returns. Its reasonable valuation and high yield make it an appealing investment, especially in market downturns.
Altria stock provides reliable dividends and potential for total return. Investors should seize the opportunity to add shares at a reasonable price after the recent dip.
Should you invest $1,000 in Altria Group right now?
Before investing in Altria Group, consider this:
The Motley Fool Stock Advisor team has identified the 10 best stocks for investors to buy now, and Altria Group was not included. Learn more about the 10 best stocks…
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