Shares are falling. Monetary TV is rolling out the “Markets in Turmoil!” headlines. Uncertainty abounds over how a lot President Trump’s tariffs will affect the U.S. economic system. Each the broader Nasdaq Composite and the big-tech heavy Nasdaq-100 indexes are actually down by greater than 12% from their early January peaks as traders take their cash out of higher-risk progress shares, additional fueling individuals’s fears.
Not all shares are falling, although. In instances of uncertainty, traders are inclined to flee to security within the type of low-risk dividend-paying shares like Altria Group(NYSE: MO). The tobacco and nicotine large is up nearly 10% 12 months thus far and nonetheless sports activities a dividend with a 7% yield. With these info in thoughts, must you purchase Altria inventory with $1,000 proper now?
Altria is the mum or dad firm of Philip Morris USA, which primarily sells cigarettes in america beneath an array of manufacturers together with Marlboro, its best-selling model by far. Whereas cigarettes are nonetheless smoked broadly, gross sales volumes within the U.S. have been declining for many years now, they usually proceed to. Within the fourth quarter, Altria’s cigarette gross sales quantity fell by about 8% 12 months over 12 months.
Regardless of that, Altria’s internet income after excise taxes grew by 1.6% year-over-year to $5.1 billion final quarter as the corporate boosted its costs on packs of cigarettes by greater than sufficient to make up for the misplaced gross sales. Its pricing energy has allowed it to maintain revenues rising within the face of quantity declines for a few years, whereas additionally growing revenue margins for the smokeables division. In 2024, smokeables working earnings grew 1.4% to $10.8 billion, making up the vast majority of Altria’s earnings. With a 60% working margin, the smokeables division is among the most worthwhile companies on the planet.
Over the long run, Altria plans to considerably develop its smoke-free division, which incorporates nicotine pouches, digital vaping, and doubtlessly different merchandise like heat-not-burn units. By 2028, administration needs to double gross sales of its smoke-free merchandise to $5 billion, which might be a large share of Altria’s present annual income of $20 billion. Nevertheless, the corporate is properly behind rivals equivalent to Philip Morris Worldwide, the place smoke-free merchandise are shut to creating up 50% of total gross sales proper now. This will probably be an vital phase for traders to trace for the remainder of the last decade.
Altria’s underlying enterprise is very worthwhile, but it surely’s a low-growth market. The smoke-free merchandise phase has some promise, however for now, it is a small a part of the operation. The very best characteristic of this inventory for traders could be administration’s capital return technique.
By way of a mix of share repurchases and dividend hikes, Altria Group constantly grows its per-share payouts to shareholders yearly. During the last 10 years, the variety of shares excellent has fallen by 14%, and buybacks accelerated in 2024. Its dividend per share steadily climbed, and is up round 100% within the final 10 years; the present quarterly payout is $1.02 per share.
Administration plans to develop its dividend per share at a mid-single-digit share fee yearly (learn: round 5% a 12 months) by 2028. With constant share repurchases and wholesome money era nonetheless coming from the cigarette enterprise, I believe that is an achievable purpose.
Shopping for shares of Altria Group inventory is a straightforward approach to get dividend earnings and dividend progress over the subsequent 5 years. It’s a excellent inventory so as to add to a portfolio to supply a counterweight to the expansion and know-how names that could be sinking in the mean time.
Shopping for $1,000 value of Altria Group inventory provides you with round $70 in dividend earnings yearly, based mostly on the present dividend yield. With free money movement per share of $5.01 — the gas for dividend funds — and a ahead annual dividend per share of $4.08, Altria has room to develop payouts by 5% a 12 months for 5 years even when its free money movement per share stays stagnant. Nevertheless, over the past 10 years, Altria’s free money movement per share has grown by 103%, outpacing its dividend per share progress.
What does all this imply? For each $1,000 you place into Altria Group inventory right now, you’re going to get round $70 in dividend earnings this 12 months. However over the long run, the corporate ought to wind up paying you even larger quantities based mostly on its capital return technique. This makes Altria a incredible dividend inventory to carry throughout unsure market environments. Watch these dividend funds pile up whilst hypergrowth shares expertise main volatility.
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Brett Schafer has no place in any of the shares talked about. The Motley Idiot recommends Philip Morris Worldwide. The Motley Idiot has a disclosure policy.
