Few companies have treated dividend investors as well as tobacco leader Altria Group (NYSE: MO) . For half a century, dividends have been a key part of Altria's strong performance for long-term investors. In that time, the company has consistently rewarded its investors with regular dividend increases, with annual boosts becoming commonplace.
In 2018, investors were rightfully confident that Altria would be able to give them a bit more capital in the form of quarterly dividends, but most of them expected news of a dividend increase to come later in the year. Instead, Altria didn't waste any time, announcing a higher dividend at its first opportunity. Let's look more closely at Altria and why it did something out of the ordinary to start the year.
Dividend stats on Altria Group
|Current Quarterly Dividend Per Share||$0.70|
|Number of Consecutive Years With Dividend Increases||49 years*|
|Last Increase||March 2018|
Data source: Yahoo! Finance. Last increase refers to dividend announcement. * Takes into account adjustments for spinoffs.
A change in the pattern
There's nothing particularly remarkable about the move that Altria just made. The March 1 announcement simply noted the new dividend rate of $0.70 per share, which amounted to a boost of $0.04 per share or 6% from what it had paid previously. The new dividend will get paid to shareholders of record as of March 15, and final payments will go out on April 10.
What is unusual, though, is the timing of Altria's payout. The tobacco giant just boosted its dividend six months ago, with an 8% rise having come back in August. At that time, the company said that it still expected earnings growth of 7.5% to 9.5%, helping it support a dividend increase in the high single digits on a percentage basis. That move allowed Altria to keep pursuing its goal of paying out about 80% of its adjusted earnings in dividends, and it continued a long streak of years in which the Marlboro maker made its annual increases during the summer months rather than doing so early in the year.
Altria didn't give any noteworthy new reasons for changing its timing, simply repeating its intention to target a dividend payout ratio of around 80%. With the increase, Altria has now raised its dividends 52 times in the past 49 years and yields 4.3%.
A possible reason for the increase
Despite Altria's terse press release regarding the dividend increase, it's easy to speculate that one particular source of funds could have justified the unusual timing of the boost. Tax reform led to new laws in late December, and like many companies, Altria saw huge benefits as a result of the shift in tax policy.
In its fourth-quarter financial report, Altria said it recorded a $3.35 billion tax benefit, which it said was primarily related to tax reform items. Deemed repatriation taxes on overseas earnings were relatively minimal because of Altria's domestic focus, but the revaluation of deferred tax liabilities had a huge upward impact on the bottom line. In total, those tax-related items worked out to an extra $1.76 per share in earnings in the fourth quarter of 2017.
Taxes should keep helping Altria. With adjusted effective tax rates expected to be in the 23% to 24% range during 2018 -- down from 33.4% in 2017 -- Altria's future savings should pay for its most recent dividend increase, along with the company's new $1 billion stock buyback authorization and other possible future spending.
What's next for Altria's dividend?
The big question for Altria isn't whether investors will get another dividend increase but rather when such an increase will come. It's possible that the tobacco giant will simply move its future annual increases to occur early in every year, but I think it's still possible that Altria will do another dividend increase on its normal schedule in August. That would potentially make 2018 one of the best years that dividend investors have seen from Altria.
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