This Tobacco Company is a Smoking Hot Deal for the Investors
Tobacco companies have long been known for offering rich dividends.Altria (MO) is one such company. It is a dividend aristocrat. It increased its dividend by 8% (45th consecutive increase). The company plans to pay about 80% of its earnings to its shareholders. Despite hailing from an unhealthy industry, this company has a huge customer base. This company is known for becoming investors’ staple. It has a leading position in the U.S. tobacco space. It competes with premium brands and boasts of higher margins than most of them.
Its flagship brands include the likes of Marlboro, Skoal smokeless tobacco and Black & Mild cigars. The company also owns a wine business.
Take a look at the numbers
Altria’s 2014 second-quarter reported diluted earnings per share (EPS) increased 1.6% to $ 0.64, as comparisons were affected by special items. Altria’s 2014 second-quarter adjusted diluted EPS, which excludes the impact of special items, increased 4.8% to $ 0.65. Altria’s 2014 first-half reported diluted EPS decreased 6.8% to $ 1.23, as comparisons were affected by special items. Altria’s 2014 first-half adjusted diluted EPS, which excludes the impact of special items, increased 5.2% to $ 1.22. Altria revised its 2014 full-year reported diluted EPS guidance from a range of $ 2.53 to $ 2.60 to a range of $ 2.54 to $ 2.59. Altria revises its 2014 full-year adjusted diluted EPS guidance from a range of $ 2.52 to $ 2.59 to a range of $ 2.54 to $ 2.59, representing a growth rate of 7% to 9% from an adjusted diluted EPS base of $ 2.38 in 2013. Altria announced a new $ 1 billion share repurchase program to be completed by the end of 2015. (Source: Company’s Website)
In May 2014, Altria’s Board of Directors declared a regular quarterly dividend of $ 0.48 per common share. The current annualized dividend rate is $ 1.92 per common share. As of July 18, 2014, Altria’s annualized dividend yield was 4.6%. Altria paid $ 955 million in dividends in the second quarter and $ 1.9 billion in the first half of 2014. Altria expects to continue to return a large amount of cash to shareholders in the form of dividends by maintaining a dividend payout ratio target of approximately 80% of its adjusted diluted EPS.
During the second quarter of 2014, Altria repurchased approximately 3.3 million shares of its common stock at an average price of $ 40.72 for a total cost of approximately $ 132 million. Altria has approximately $ 53 million remaining in the current $ 1 billion share repurchase program and expects to complete the program by the end of the third quarter of 2014. Additionally, Altria’s Board recently authorized a new $ 1 billion share repurchase program, which Altria expects to complete by the end of 2015.
“During the first six months of 2014, Altria grew adjusted diluted EPS by 5.2% behind solid performance by our companies’ leading premium brands and the strength of our diverse business model,” said Marty Barrington, chairman and chief executive officer of Altria. “Our companies are delivering against their strategies and their full-year plans are on track. We thus are tightening our guidance and now expect to deliver full-year adjusted diluted EPS growth in a range of 7% to 9%.”
Emerging markets look promising
Altria is looking forward to gaining big from the emerging markets, which look promising enough. These markets have much lower taxes when compared to the European counterparts. Many parts of Asia and Africa have lower excise duty.
Altria group has a domestic market share of about 50%, which makes it dominate the U.S. market. There is a decline in smoking rates, and the regulations are increasing. It is safer to invest in this company since people prefer the same brands over and over again. It has a steady balance sheet. The diversion into the e-cigarettes will certainly add fuel to its growth.
Many have thought that the cigarette industry is a sunset industry because of the social stigmatization attached to it. But there is a silver lining to it since increasing number of people is moving towards e-cigarettes. Out of the global U.S. $ 169 billion tobacco industry, about U.S. $ 6 billion comes from e-cigs. U.S. is the largest e-cig market worth $ 1.7 billion as of 2014. This company has plenty of room for growth and to offer to its shareholders. It has a low beta of 0.44.
MO is continuously ramping up its innovation process. It is taking the right initiatives to gain market dominance. This trend is going to continue. MO is all set to build out a solid international presence, and it may be rightly said that it will find many tobacco huffers. Investors who have no issues with these companies should definitely consider taking up this company for consideration. It has been known for pumping steady returns to its shareholders. Altria is poised to grow further in the near future creating shareholder returns
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