Altria (NYSE: NYSE:MO), the U.S. distributor of Marlboro cigarettes, is experiencing a significant shift in its market position due to evolving consumer attitudes towards smoking and the surge in popularity of alternatives such as vapes. With a substantial market share of 42.3% in the premium category, Altria's viability as a long-term dividend stock is being questioned due to the increasing unpopularity of cigarettes linked to health risks like cancer.
In Q3, Altria's and Marlboro's volumes saw a decline of 11.6% and 10.5% YoY, respectively. This downturn, which began amid the coronavirus pandemic in 2020, has resulted in consistent volume declines. Despite these challenges, Altria has managed to sustain its earnings and dividend-paying capacity through regular cigarette price increases. This strategy has enabled the company to maintain a 14-year streak of annual dividend increases, attracting income-focused investors.
Currently, Altria's robust dividend yield stands at 9.7%, competing with the S&P 500 index's 1.5% yield and safe income alternatives like CDs' 5%. However, concerns persist about Altria's ability to counteract volume decreases with price hikes long-term. The company's Q3 adjusted earnings were $1.28 per share with a payout ratio of 76.5%.
Altria's stock has suffered a significant hit, falling around 50% from its 2017 highs. This drop reflects a negative investor outlook due to continuous volume decline in its main business and underlying negative business trends. While the growing dividend is appealing, potential investors are advised to exercise caution given these negative trends.
InvestingPro Insights
Altria's market capitalization stands at $71.93 billion, with a low price-to-earnings ratio of 8.28, suggesting that the stock might be undervalued. The company's return on assets is impressive at 24.88%, indicating efficient use of its assets to generate earnings. InvestingPro's data also shows a significant dividend yield of 9.64%, reinforcing Altria's attractiveness as a dividend stock.
InvestingPro Tips suggest that Altria has consistently increased its earnings per share and maintained a high shareholder yield. The company has also raised its dividend for 13 consecutive years, which is in line with the article's highlight of Altria's appeal to income-focused investors. Despite the declining revenue, Altria's impressive gross profit margins and strong free cash flow yield, as suggested by its valuation, indicate its financial resilience.
It's worth noting that InvestingPro offers many more tips and data points that could further guide investment decisions in Altria. These insights are part of the comprehensive financial analysis available to InvestingPro subscribers.
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