MO - 2 Misconceptions About Altria

2024-07-16 15:26:21 ET

Summary

• This article scrutinizes two common arguments made about Altria Group, Inc. – one bearish and one bullish.
• I will argue why they are misleading and/or incomplete.
• The bears' argument regarding the declining cigarette volume is, it only considers half of the equation.
• The bulls' argument regarding the high dividend yield is incomplete.
• Total shareholder yield is what matters and includes cash dividends, buybacks, and debt paydowns.

MO stock: cigarette volume and dividend yield

I last wrote on Altria Group, Inc. (MO) three months ago. The article was titled “ Can't Argue With Its 10% Dividend Yield ” and was published by Seeking Alpha on April 17, 2024, as seen in the screenshot below. In that article, as the title suggested, I focused on its dividend yields. More specifically, I argued that:

Altria Group currently has a dividend yield of 9.55%, which is above its historical average and among the highest levels in a decade. Its valuation ratios (e.g., P/E and P/cash) also indicate extraordinary discounts. Usually, these signs point to unsustainable dividends and/or terminally ill business fundamentally. But our conclusion is that neither scenario is likely and thus we consider the stock a good contrarian investment opportunity.

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