Tobacco stocks have been gaining strength in the past six
The sector was No. 5 of 33 sectors, as of Wednesday's IBD. The
industry group moved up from No. 92 six weeks ago to No. 12 among
Altria Group (
) is the best-looking stock in the group, at least in terms of
its Relative Strength line. The stock is up about 20% so far this
year, easily beating the S&P 500's 6% gain.
The tobacco companies are known for generous dividends.
Altria's annualized yield is 4.6%.
For Altria, the dividend is a high priority. The company's
goal is to pay out 80% of adjusted EPS.
The most recent dividend increase was announced last August,
boosting the quarterly payout to 41 cents per common share from
38 cents. At the time, the company noted it had raised the
dividend 45 times in the past 42 years.
On Tuesday, Altria reported a 9% pop in quarterly EPS, topping
views modestly. Revenue rose 10%, also above estimates and the
best growth in more than two years. The company also raised
Higher cigarette prices and increased market share for
Marlboro drove the estimate-beating results.
Some news publications reported that Altria's earnings "nearly
tripled" in the quarter, but that was based on one-time charges
that reduced EPS in the year-ago quarter. IBD generally uses ex
items figures to get a better feel for the underlying pace of
The three- and five-year EPS stability ratings are both 1. The
rating runs from 0 (calm) to 99 (erratic).
Return on equity, a measure of financial efficiency, was 96%
last year. The debt-to-equity ratio was 356%, and high debt will
artificially pump up ROE.
Pretax margin was 27% -- near decade highs. After-tax margin
was 18.5%, down from the year ago's 19.1% but still near the
highs of recent years.
Drawbacks for Altria are generally shared by all tobacco
stocks. Litigation and government actions are continuing risk
factors. The Tobacco Control Act of 2009 will phase in a number
of restrictions, denying tobacco companies the freedom to sponsor
events or to give away branded products such as T-shirts.