The tobacco firm which owns such big names as Philip Morris and John Middleton made news recently as it set out to take its share of the emerging e-cigarette market with its new MarkTen being launched in two test markets in the U.S. Now at the beginning of 2014, it's time to see how Altria Group Inc. (MO, Financial) is fairing in a market which is being increasingly restricted by government legislation.
Momentum and Growth
From the financial records, we can see some strong signs of growth. The company’s cash flow from operations has grown steadily over the past three years from $2.77 billion in 2011 to $3.9 billion in 2013. This is a healthy rate of growth showing that the company’s regular business activities continue to be more and more profitable year over year.
Altria Group’s return on equity (ROE) has also been increasing at an ever increasing rate since 2012. Currently, the ROE is 143.80%. Such a high figure indicates a stock with very strong potential for growth.
For the price momentum investors out there, Altria Group makes itself an appealing option. Its current price of $37.30 (as of market close on Jan. 24) is more than double its price of $15.44 just five years ago. Furthermore, this rapid upward momentum in stock price has been largely unbroken apart from one or two slower months here and there.
To add to the list of reasons why Altria Group is a great growth stock to buy at the beginning of 2014 is the company’s very favorable earnings per share (EPS) ratio. Even when we use the more conservative calculations of the diluted earnings per share, Altria has shown consistent growth for the past seven quarters.
The company’s current diluted earnings per share figure is $2.56 which is a very close match with its basic earnings per share of $2.58. The fact that these two figures are so similar means that the latter, more optimistic figure is more realistic. If the diluted earnings per share ratio (which represents a sort of worst-case scenario situation) had been significantly lower, it would indicate potentially higher risk as any troubles the company encountered would detract heavily from its earnings.
Sustainability
In addition to these many signs of growth potential, Altria Group also reveals itself to have strong foundations enabling it to sustain such high levels of growth. One of these signs is the increasing cash flow from operations mentioned above. The increasing cash flow means that the growing earnings can be attributed to real business activities.
Beyond that, we can also turn to the company’s number of shares outstanding. Currently at $2 billion, the number of shares outstanding has been steadily decreasing since 2011. This is a pleasant sight for investors as an increasing numbers of shares outstanding is often a sign of instability or panic within the company.
Altria Group has also been able to continuously lower its debt to equity ratio since the beginning of 2013, meaning the company is increasingly able to meet its debt obligations without showing signs of struggle.
For the Investors
Beyond Altria Group’s great future potential, it also offers some remarkable dividends. With a dividend yield of 5.19% and payouts exceeding 65%, investors have even more to look forward to in the coming years as Altria Group grows and expands into new markets.
Conclusions
Investors looking for a fast-growing stock with a stable upward trajectory to add to their portfolios will do well to consider buying some shares of Altria Group. Not only are there countless signs of growth and forward potential, but this stock offers one of the highest dividend yields out there, making it a great stock to hold on to. And unlike some growth stocks, Altria Group’s financial record also shows evidence of stability; the increase in earnings can be attributed to successful business activities and not temporary solutions like borrowing or selling off assets. This company seems to have a strong business plan that prioritizes operating efficiency as well as keeping its investors happy.
