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Alberto Abaterusso
Alberto Abaterusso
Articles (1297) 

Altria Group Declares Quarterly Dividend

The US tobacco giant will continue to distribute 80 cents per share for the last trimester of 2018 as well

December 13, 2018 | About:

The U.S. tobacco giant Altria Group Inc. (NYSE:MO) announced Wednesday that holders of the common stock will receive an 80-cent cash quarterly dividend per share on Jan. 10, 2019.

In order to benefit from the payment, shareholders must be on the company’s books no later than Dec. 26. The ex-dividend date is scheduled for Dec. 24. The payment refers to the last trimester of 2018, is on par with the previous one and reflects a 21.2% increase from the dividend paid on Jan. 10, 2017.

If held constant, the cash quarterly dividend of 80 cents totals an annual payment of $3.20 per ordinary share, for a forward dividend yield of 6%. The forward dividend yield is calculated from the share price of $53.3 at close Wednesday and compares to an industry median of 5% and the S&P 500 index’s dividend yield of 1.97%.

This forward dividend yield is also the result of a 25% drop in the market value of the stock so far this year.

Fears about the Food and Drug Administration’s plan to ban menthol cigarettes and flavored cigars and to curb the sales of flavored e-cigarettes have undoubtedly impinged on the share price as menthols account for more than 30% of all cigarettes sold in the U.S.

But the depreciation was largely due to a general downtrend in the U.S. equities market. The S&P 500 index, usually used as benchmark for the stock market, shows that U.S. publicly traded equities fell 9.5% over the last 12 weeks to $2,651.07 per share on Dec. 12 from $2,929.67 on Sept. 20 when it reached the highest since 1969.

Besides the availability of $2.4 billion in cash and equivalents and a $3 billion senior non-guaranteed five-year revolving credit line, Altria Group can allocate to business growth purposes about 8-10% of its operating cash flow, which for the trailing 12 months to the third quarter was approximately $5.6 billion.

The tobacco giant is also using the cash to buy back its own shares. Over the same period, Altria Group has already bought back about 30.2 million shares of its own common stock outstanding, investing approximately $1.875 billion.

The balance sheet of Altria Group is more leveraged than most of its competitors since the total debt-equity ratio is 90% versus an industry median of 32%. However, an interest coverage ratio of 14.03, which is well above the threshold of 1.5, is indicating that the company does not have any problem paying the interest expenses on the total debt outstanding.

The company is supporting dividend, investments, buy back programs and debt repayments with cash that it is making through the sale of a wide range of tobacco products. The entire sales volume of the smokeable segment is practically covered by Marlboro, one of the most well-known and sold brands of cigarettes in the U.S.

The portfolio also includes smokeless products and winery, but the smokeable segment remains the main source of revenues and income for Altria Group, making up about 85.6% of total revenues net of excise taxes of $5.3 billion and approximately 84.7% of total adjusted operating income of $2.7 billion in the third quarter of 2018. The adjusted diluted net earnings per share increased 20% year over year to $1.08, and surprising analysts who were, instead, expecting adjusted diluted earnings per share of $1.07.

With regard to the upcoming period, consensus is for revenue of $4.84 billion for the last quarter of 2018, which is 2.7% growth, and of $19.66 billion for full-year 2018, reflecting a 0.8% increase from 2017. The average adjusted diluted net earnings per share is forecasted to be 96 cents for the last trimester of 2018 and $4 for the entire year 2018. For last fiscal year the company issued adjusted diluted earnings per share of 91 cents for the fourth trimester and $3.39 for the entire 2017.

Analysts are also forecasting that Altria Group’s net earnings will grow 9.14% every year on average over the next five years.

Valuation of Altria Group

The market capitalization of about 1.88 billion shares outstanding is $101.37 billion. The share price of $53.3 at close Wednesday is below the 200-, 100- and 50-day simple moving average lines.

The price-book ratio is 6.47 versus an industry median of 3.78, the price-sales ratio is 3.98 versus an industry median of 2.66 and the price-earnings ratio is 9.51 compared to an industry median of 17.38.

The 52-week range is $52.73 to $74.38.

The forward price-earnings ratio is 12.38 compared to an industry median of 17.48. When the forward price-earnings ratio of 12.38 is multiplied by forecasted adjusted diluted earnings per share of $4.32 for full year 2019, it yields a value of $53.48. The average target price is $65.09 per share, reflecting 18.1% upside.

For Peter Lynch the stock appears to be priced fairly.

Disclosure: I have no positions in any securities mentioned in this article.

About the author:

Alberto Abaterusso
If somebody asks what being a Value Investor means, Alberto Abaterusso would answer: “the Value Investor is not the possessor of a security that represents the company, but he is the owner of that company. As an owner of the company the Value Investor is actively involved in the dynamics of that company and his first aim is how to have sales progressively growing.”

Alberto Abaterusso would add: “probably the Value Investor is one of the least patient persons in the world concerning sales.”

Alberto Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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