We recently published a list of the 9 best high-yield dividend growth stocks to buy according to hedge funds. Since Altria is part of the list, the stock needs a deeper look. But first, let’s take a look at why analysts believe investing in dividend stocks would make sense in 2024, especially when rates are expected to remain high.

Dividend stocks almost never go out of fashion thanks to the allure of steady payment checks and hedge against uncertainty these equities provide, especially during troubled times. A latest report from Wisdom Tree cited data from American economist Robert J. Shiller, who calculated in a research paper that since 1957, dividends on average grew by 5.7% per year, easily surpassing the 2% inflation rate every year. Over the past 64 years, dividends fell only during six years, while stock prices declined in 18 years during the same period.

Dividend Growth or High Yields?… Or Both?

Should you invest in high-yield dividend stocks or dividend growth stocks with decades of consistent dividend increases to their record? This has been a topic of discussion in both Wall Street and academia for over the past several decades. But experts believe that during volatile times when interest rates are high, investing in high-quality dividend stocks with high yields and growth track record seems to be the best and safest option for investors. Sterling Capital in a latest report talked about this in the context of rate hikes:

“While we have been through a period of 11 Federal Reserve (Fed) rate hikes and uncertain macroeconomic conditions, we believe companies that can pay a secure and growing dividend demonstrate the strength of an investment. As we have shared in recent months in our discussion of advantaged value, companies with these characteristics tend to have differentiated positions, possibly achieving strong market shares with the benefits of economies of scale and resilient balance sheets. They are typically able to play both offense and defense as the economy moves through uncertain times.”

Dividend Growth Stocks Over High-Growth AI Stocks?

Answering a question about why he’d prefer dividend growers like Procter & Gamble Co (NYSE:PG), Exxon Mobil Corp (NYSE:XOM) and Johnson & Johnson (NYSE:JNJ) over high-growth software companies while talking to CNBC back in March, David Bahnsen, the CIO at Bahnsen Group, said that he has “tons of track record” to prove that dividend growers perform better in the long run, and that “ultimately” cash flow is “king.” The analyst gave examples of Tesla and Apple who were not performing well in terms of stock prices at that time, and said that “those things” don’t end well, referring to strong bull runs of tech companies.

Asked whether he’d still allocate some portion of his portfolio to AI, Bahnsen said that “margins don’t hold with that kind of revenue” growth,” referring to high valuations of companies in the AI space. The investor said he owns dividend-growing stocks like Broadcom which is very much exposed to AI but also have a strong dividend growth history and strong cash flows.

Concerns About Nvidia

Bahnsen during the interview in March also said that NVDA was continuing to jump “vociferously,” sharing valuation concerns about the company. As of the end of March, NVDA was trading at around $903, while today it has reached $1105. Many other analysts are joining the group of Nvidia skeptics who believe the stock’s valuation has gone too high. Our latest research unlocked many AI-related stocks trading at attractive valuations. If you are looking for an AI stock that is as promising as Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Methodology

For this article we first scanned Insider Monkey’s database of 919 hedge funds updated as of the first quarter of 2024 and listed down dividend-paying stocks with yields over 4% and at least 10 years of consistent dividend growth with strong hedge fund sentiment. From the long list of stocks we got as a result, we chose dividend stocks with the highest yields and consecutive number of years of dividend increases. We further narrowed down our selection to the stocks from this group and chose nine stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here). 

Some of the most popular dividend stocks to own according to hedge funds include Procter & Gamble Co (NYSE:PG), Exxon Mobil Corp (NYSE:XOM) and Johnson & Johnson (NYSE:JNJ), in addition to high-yield dividend growers like Altria.

Altria Group Inc. (NYSE:MO)

Number of Hedge Fund Investors: 38

Altria Group Inc. (NYSE:MO) is one of the best high-yield dividend growth stocks to buy now according to hedge funds, with 54 years of consistent dividend increases. While Altria Group Inc.’s (NYSE:MO) Q1 results were weak, its guidance impressed the Wall Street. Altria Group Inc. (NYSE:MO) expects adjusted EPS in the period to come in between $5.05 to $5.17, representing a growth rate of 2% to 4.5% from a base of $4.95 in 2023. The midpoint of this guidance is more than the Wall Street consensus of $5.11. Analysts are also welcoming Altria Group Inc.’s (NYSE:MO) decision about selling $2.2 billion worth of its stake in AB InBev. Altria Group Inc.’s (NYSE:MO) management talked about share buyback program during latest earnings call:

“Moving to capital allocation. In March, we sold a portion of our investment in ABI and expanded our share repurchase program to $3.4 billion. In expanding our repurchase program, we implemented a $2.4 billion accelerated share repurchase program under which we received 46.5 million shares in March, representing 85% of the ASR program. These repurchases are reflected in our weighted average shares outstanding for the quarter. We expect to receive shares representing the remaining 15% of the ASR program by the end of the second quarter. After the completion of the ASR program, we anticipate having $1 billion remaining under the currently authorized share repurchase program, which we expect to complete by year end. Turning to ABI’s financial results, we recorded $165 million of adjusted equity earnings for the quarter, down 8.3%.

As a reminder, we use the equity method of accounting for our investment in ABI and report our share of ABI’s results using a one quarter lag. Accordingly, our first quarter adjusted equity earnings represent our share of ABI’s fourth quarter earnings. Following the ABI transaction, our ownership of ABI is approximately 8.1% with a tax basis of approximately $1.2 billion. We continue to view the ABI stake as a financial investment, and our goal remains to maximize long term value of the investment for our shareholders. Turning to other capital allocation activity, we paid approximately $1.7 billion in dividends and retired $1.1 billion of notes that came due in the first quarter, and as of March 31, our debt to EBITDA ratio was 2.1 times.  [read the full earnings call transcript here].”

Altria Group Inc. (NYSE:MO) is expected to generate strong FCF until at least FY 2026 based on current estimates, and the management expects to dole out about $6.92 billion as of FQ1’24. The stock is one of the most popular dividend names among the hedge funds tracked by Insider Monkey, joining high-profile names like Procter & Gamble Co (NYSE:PG), Exxon Mobil Corp (NYSE:XOM) and Johnson & Johnson (NYSE:JNJ).

Andvari Associates stated the following regarding Altria Group, Inc. (NYSE:MO) in its first quarter 2024 investor letter:

“Our second example of a high-yielding security is the stock of Altria Group, Inc. (NYSE:MO). Before we get into the details of why we started a position in Altria, a brief history is in order. The company was formerly known as Philip Morris before rebranding to Altria in 2003. Cynically, the rebranding was to minimize the negative attention from its tobacco business. However, the company also owned Kraft Foods and Miller Brewing, so it was logical to reflect its status as a conglomerate. Since rebranding, Altria has slowly “de-conglomerated”. It spun out Kraft in 2007. It spun out Philip Morris International in 2008. In 2021, it sold its Ste. Michelle Wine Estates business. Finally, last month Altria announced it is selling part of its 10% ownership in Anheuser-Busch InBev (BUD)

Andvari has followed Altria since we began our investment career. Profitability is extraordinary and the business requires minimal capital expenditures. Despite the volume of cigarettes having steadily declined—a great thing for our population health—Altria has still managed to grow revenues and profits with regular price increases…” (Click here to read the full text)

Altria Group Inc. (NYSE:MO) ranks 1st in Insider Monkey’s list of the 9 Best High-Yield Dividend Growth Stocks to Buy Now.

If you are looking for an AI stock that is as promising as Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: Michael Burry Is Selling These Stocks and Jim Cramer is Recommending These Stocks.

Disclosure: None. This article is originally published at Insider Monkey.