Altria Group Inc. (NYSE:MO) announced Aug. 24, through a press release published on its website, the dividend for the third quarter of fiscal 2017. The tobacco giant headquartered in Henrico County, Virginia, will pay 66 cents per ordinary share to shareholders of record as of Sept. 15. The dividend will be paid by Altria Group to its shareholders on Oct. 10.
This represents an 8.2% increase from the previous quarterly dividend of 61 cents. This dividend increase proves one thing: Despite a mounting campaign against smoking, the company is able to increase revenue – almost 90% from the sale of tobacco – and increase the net profit at a stable pace and continue to financially sustain the dividend growth. Just have a look at its figure of levered free cash flow that the tobacco giant can allocate in investments to grow the business and pay dividends over a period of 12 months: This is more than $7 billion. This means that the consumption of tobacco can guarantee the allocation of more than 65% of the post-financial obligations free cash flow in the distribution of dividends and 35% in investments to grow the company’s overall business and in portfolio diversification.
Also, the increasing taxation on tobacco as a measure to discourage smoking, didn’t scratch the consumption of cigarettes and cigars over time at all.
The steady distribution of a sizable part of its free cash flow to its shareholders and its growth over time makes the American tobacco company a loyal payer of a quarterly dividend.
Furthermore the production and marketing of smokeless products will enable Altria Group to recover that portion of revenue that it might lose with the reduction of the consumption of traditional tobacco at a later stage.
Should the investor be concerned about the impact of the introduction of a national law banning smoking in public places, that is becoming more and more popular in many nations, on the consumption of cigarettes, he/she should know that prohibiting smoking in public places will stimulate smoking more cigarettes when smokers are at home or outdoors.
For the third quarter of fiscal 2017 and for the entire year analysts forecast that Altria Group will close the income statement showing a bottom line – adjusted to one-time charges – of 88 cents and $3.26. The quarterly EPS is a 7.3% increase from the comparable of fiscal 2016 and the EPS forecasted for full fiscal 2017 is a 7.6% increase from full fiscal of 2016.
Source: Yahoo Finance
Concerning revenue for the third quarter and full year of fiscal 2017, analysts forecast 0.20% and 2.10% year-over-year increases to $5.21 billion and $19.74 billion.
Source: Yahoo Finance
Analysts also estimate a growth in earnings of 8.90% from fiscal 2017 to fiscal 2018 and an average growth rate in annual earnings of 7.95% over the next five years.
As of the most recent quarter ended June 30, Altria Group had approximately $2.26 billion or $1.17 per share and about $13.89 billion. The total debt-equity ratio is 111.48. The total current ratio that measures the ability of Altria Group to meet its short-term obligations with cash on hand and other securities that have a short-term cash conversion cycle is 0.83.
GuruFocus gives Altria Group a financial strength rating of 5 out of 10 and a profitability and growth rating of 8 out of a total of 10.
Altria Group is trading at $63.60 per share versus a target price per share of $71.92 which is the mean of a $62 to $80 per share range. The recommendation rating is 2.2 out of 5. This means that analysts recommend buying shares of Altria Group.
The tobacco stock is downtrending since the beginning of June and lost nearly 6% year to date. The share price is just a few dollars above Altria Group’s 52-week low. The 52-week high is $77.79 per share.
The price-book (P/B) ratio is 9.82, the price-sales (P/S) ratio is 6.34, and the price-earnings (P/E) ratio is 8.39.
A quick way to see if the stock is overvalued or undervalued by the stock market is multiplying the forward P/E ratio of 19.49 by an EPS of $3.41, which is a mean between the two EPS forecasted by analysts for fiscal 2017 and 2018. The combined metric yields $66.5 per share. This means that Altria Group is slightly undervalued by the market.
The chart below also shows that Altria Group is undervalued by the market since it is trading below the Peter Lynch Earnings line.
Undervalued or not, a tobacco giant and a loyal dividend payer like Altria Group with a dividend yield of 3.83% is for dividend focused investors.
Disclosure: I have no positions in Altria Group.
