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Sin Stocks … Love It Or Hate It, Altria Pays A Safe 8.0%

Posted on Tuesday, July 28th, 2020 by Thomas Hughes

Sin Stocks … Love It Or Hate It, Altria Pays A Safe 8.0%A Little Sin For The Win?

Sin stocks. You either love them or hate them, it’s hard to have a middle ground, but one thing is certain. They can be great stocks to own in times of economic downturn and often pay great dividends. In terms of the group, there’s not a lot of cohesive factors other than they are controversial and somehow make their money on the darker side of life. Things folks don’t want to give up or even turn to when times are hard. Things like alcohol, tobacco, gaming, entertainment, firearms, cannabis, and even candy, soda and gold.

Today’s news highlights one of the reasons sin stocks are able to remain viable in today’s age of ESG investing. The Dividend. Everything else aside, when it comes to investing the #1 rule after protecting your capital is maximizing returns. One way to maximize returns is to target dividend-paying stocks, another better way would be to target high-yielding dividend-paying stocks. Yet another, even better way, would be to target distribution growing high-yielding dividend-paying stocks and that’s what we have with Altria (NYSE:MO).

Altria Just Raised Its Dividend

It really was no surprise that Altria raised its dividend today. The company is a Dividend King with 50, now 51, consecutive years of increases. What is surprising is that Altria is still yielding over 8.0%, a rate that puts it more than 4X above the broad market average. If not for the company’s ability to generate cash flow and consensus for earnings the 8% yield would be a red flag. All too many companies have halted the increase cycle, cut or even suspended their payments for income investors to be sanguine on the market.

“We’re pleased to announce that yesterday, our Board declared a quarterly dividend of $0.86 per share, representing a new annualized dividend rate of $3.44 per share and an increase of 2.4% from the previous annualized rate of $3.36 per share. This dividend increase marks the 55th dividend increase in the past 51 years,” said Sal Mancuso, Altria’s Chief Financial Officer.

Looking forward, there is every expectation that Altria will continue to increase the distribution next year. The company targets an 80% payout ratio and the consensus for 2021 EPS growth is about 5%. While not large, the expectation for increase is there and enough to ensure the 8.15% Altria pays now is as safe as possible.

Little To No Impact From COVID-19

Altria’s dividend increase came in tandem with the 2Q 2020 results. The results are about as expected and reveal little to no disruption to the business during the quarter. At the top line, revenue fell 2.5% to $5.06 billion missing consensus by 0.30%. On the top line Adj EPS of $1.09 beat by $0.03 or just shy of 0.3%. Results in both primary categories, smokeables and smokeless, were better than expected and helped the company execs reinstate guidance for the year. The company now expects EPS of $4.21 to $4.38 per share or 0% to +4% YOY growth versus the analyst’s consensus $4.30.

The Technical Outlook: A Melt-Up In Progress?

Shares of Altria did not make quite the comeback that other high-yielding pandemic plays have made post-correction. That said, trading at only 9X forward earnings and yielding over 8% the stock looks incredibly undervalued and ready to move higher. Today’s news has the shares up at the highest levels since bottoming with the possibility of staging a massive melt-up. Because the company has reaffirmed full-year guidance in-line with consensus and pre-COVID expectations there is no reason this stock shouldn’t be trading at its pre-COVID levels or higher. That’s a gain of 15% at least, and that’s not counting the 8% yield.

Sin Stocks … Love It Or Hate It, Altria Pays A Safe 8.0%

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Altria Group (MO)2.4$42.17+1.5%7.97%-81.09Buy$50.36
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Almost everyone loves a company that pays strong dividends. Who doesn't like receiving a check every quarter for simply owning a stock--especially if that stock is paying you back 4%, 5% or even 10% of its share price in annual income each year?. In a world where 10-year treasuries are yielding just above 2%, it seems hard to go wrong when buying a stock that's yielding significantly above the going rates on fixed-income assets. Unfortunately, the market rarely offers a free lunch.

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View the "20 High-Yield Dividend Stocks that Could Ruin Your Retirement Portfolio".

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