Altria Group (NYSE:MO) has been a solid dividend payer for an impressive 53 years, with a whopping 57 payout increases to its credit. And guess what? They’re just days away from extending that streak even further!
Sure, at first glance, you might be taken aback by Altria Group’s 8.53% dividend yield, especially when compared to the S&P 500’s 1.53% yield. But hold on! This is actually quite normal for the tobacco industry, which tends to have higher yields. In fact, their payout ratio of 75.2% in 2022 is pretty reasonable for the industry.
Looking ahead, analysts expect Altria Group’s adjusted diluted EPS to grow by nearly 4% annually over the next five years. This should keep the payout ratio in check, and I’m confident in maintaining that dividend growth rate for the long haul.
The first half of 2023 has been impressive for Altria Group. Despite a slight 0.1% increase in revenue net of excise taxes, they managed to pass on higher prices to consumers, offsetting a decline in cigarette shipment volumes. Their oral tobacco segment also did well, with a 2.8% growth rate thanks to their pricing prowess.
Now, let’s talk about the risks. Altria Group heavily relies on its premium cigarette brand Marlboro, which could be a concern during an economic downturn. Also, any further decline in smokeable products could be an issue, even with recent acquisitions like NJOY Holdings.
But here’s the exciting part – the stock is criminally undervalued! According to my valuation models, Altria Group’s shares are trading at a significant discount to fair value. Using both the dividend discount model and the discounted cash flows model, I calculate a fair value of $65.65 a share, which means a potential upside of nearly 49% from the current price.
Altria Group is a convincing buy for income-seeking investors. With their impressive dividend history, safe payout ratio, and consistent earnings growth, this stock has the potential to provide healthy future returns. So, if you’re looking for a reliable dividend growth machine, Altria Group might be just the ticket for your portfolio!