Why We Think Altria's (NYSE:MO) Falls Short on Our Dividend Shortlist

By Stjepan Kalinic

This article first appeared on Simply Wall St News.

Given its price elasticity, tobacco companies have historically been resilient to market downturns and recessions.

Thus, it is not surprising that, while the broad market is down, Altria Group, Inc. (NYSE: MO) is over 6% up, looking as bullish as ever.

Q4 Earnings

  • Non-GAAP EPS: US$1.09 (beat by US$0.01)
  • Revenue: US$5.09b (beat by US$90m)
  • Revenue Growth: +0.8% Y/Y

Over the next year, revenue is expected to shrink by 19% compared to a 9.1% growth forecast for the industry in the US.

Over the last 3 years, on average, earnings per share have fallen by 19% per year, but its share price has increased by 1% per year, which means it is well ahead of earnings.

Other highlights

  • FY 22 guidance adjusted diluted EPS: US$4.79-4.93 vs. US$4.61 in 2021
  • 2021 dividend payments – US$6.4b
  • Raised the dividend for 56th time in past 52 years
  • Repurchased US$1.7b shares

Reflecting on the ongoing trends, CFO Sal Mancuso believes that the ongoing challenges like rising gas prices, inflation, and reduction of COVID-19 relief programs led to a decrease in disposable income.

While tobacco consumer trips to the store continue to be depressed, tobacco expenditures per trip remain elevated. In other words, they cancel each other out.

A high yield and a long history of paying dividends is an appealing combination for Altria Group. We'd guess that plenty of investors has purchased it for the income. The company also conducted a buyback equivalent to around 1.1% of its market capitalization during the year.

Click the interactive chart for our full dividend analysis

NYSE: MO Historic Dividend January 30th, 2022

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut.Last year, Altria Group paid out 259% of its profit as dividends. Unless there are extenuating circumstances, from the perspective of an investor who hopes to own the company for many years, a payout ratio of above 100% is a concern.

Remember, you can always get a snapshot of Altria Group's latest financial position by checking our visualization of its financial health.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past and if the company has a track record of maintaining its dividend. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends.

During the past 10-year period, the first annual payment was US$1.5 in 2012, compared to US$3.6 last year. Dividends per share have grown at approximately 9.0% per year over this time. Companies like this, growing their dividend at a decent rate, can be valuable over the long term if the growth rate can be maintained.

Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Altria Group's EPS have fallen by approximately 29% per year during the past five years. With this kind of decline, we always wonder what has changed. Dividends are about stability, and Altria Group's earnings per share, which support the dividend, have been anything but stable.


When we look at a dividend stock, we need to form a judgment on whether the dividend will grow, if the company can maintain it in a wide range of economic circumstances and if the dividend payout is sustainable. Altria Group is paying out a more significant percentage of its profit than we're comfortable with. However, given the extraordinary circumstances of the last 2 years, we need to look to the forward estimates, which are at an acceptable 78%.

Second, earnings per share have shrunk, but the dividends have been relatively stable.

Overall, Altria Group's dividend is attractive due to its high yield and long payment history. If you believe we are due to a market downturn it might be even better. Yet the declining earnings per share make it fall a bit short of our criteria.

It's important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic one. However, there are other things to consider for investors when analyzing stock performance. As an example, we've identified 3 warning signs for Altria Group that you should be aware of before investing.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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