Altria Group Inc (MO): A Bullish No-Brainer

Dividends

Top and bottom line growth are important for analyzing tobacco companies, but simply put, no one expects these stocks to double anytime soon. As long as the tobacco companies can keep finding ways to grow their revenue and profits at a slow and steady rate, then investors can rely on them to produce a steady income stream with their true selling point: dividends.

Tobacco companies are some of the most shareholder-friendly companies on the planet, and for good reason – they need investor support to keep the company running in the face of constant challenges from government regulators and health groups. Therefore, they also offer some of the most consistent, stable dividends out there.

MO Dividend Yield data by YCharts

Although Altria’s dividend isn’t the highest of the bunch, its price performance over the past three years is.

MO data by YCharts

Lastly, we should also compare the companies’ dividend yield to its annual earnings per share to understand just how much tobacco companies are willing to return to their shareholders.

Source: Yahoo Finance, author’s calculations

The first thing you’ll notice is that Reynolds American’s dividends aren’t sustainable at the current rate, and it will start to take losses at this rate just to maintain its yield. Altria offers a more generous cut of its profits, at 85.4%, than Lorillard, despite offering a smaller dividend. That means as Altria’s profits improve, its dividend will eventually overtake Lorillard’s.

Challenges and the bottom line

Tobacco companies aren’t for everyone. They are slow growth stocks focused on income growth rather than fast profits. Many people consider them unethical and destined to be throttled by the U.S. government. However, Altria is a generous, shareholder-friendly company that runs a tight ship. It expands in the right areas and diligently (often mercilessly) cuts costs to grow its profits. That makes it a valuable addition to any long-term investors’ core portfolio holdings.

The article Altria: A Bullish No-Brainer originally appeared on Fool.com and is written by Leo Sun.

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