For some Americans, cigarettes are an essential product, despite the cost of smoking averaging $3,000 per smoker per year. This has allowed tobacco giant Altria Group Inc. (NYSE: MO) to raise its dividend for 56 straight years. Its shares are up 12% this year, compared to 16% for the S&P 500.
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About 29 million Americans smoke cigarettes, allowing Altria Group Inc. (NYSE: MO) to raise its dividend for 56 straight years.
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Inflation-proof Altria may be the best stock to own during the affordability crisis.
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A current dividend of $4.24 gives Altria a forward yield of 7.3%. This adds to its appeal for when the stock market falters. The current market cannot rise forever, so it is just a matter of when it will sell off and by how much.
After Altria announced another dividend increase, it said it plans to continue the boost that dividend through 2028. With tremendous cash flow and a strong balance sheet, there is no reason to think this will not be true.
According to objective tests and the court of public opinion, prices for food, clothing, and medical insurance, at least, are rapidly rising. People need these things for day-to-day life. The so-called affordability crisis is at the center of many political debates.
About 12% of Americans, or 29 million of them, smoke cigarettes. Almost 62 million Americans use some form of tobacco products. Although cigarette use in America has declined, the drop in Altria’s revenue has been modest in the past decade.
In the most recently reported quarter, Altria revenue was down 6% year over year to $5.3 billion. However, its adjusted diluted earnings per share (EPS) were 6% higher to $1.23. Management affirmed its guidance of a 2% to 5% increase in EPS for the full year. Its success in the most recent quarter came from its legacy business. CEO Billy Gifford commented, “Our highly profitable traditional tobacco businesses performed well in a challenging environment in the first quarter.”
Almost all of Altria’s revenue comes from sales of cigarettes, and many investors are hesitant to buy its stock for this reason. However, the dividend is a significant incentive to offset that.
A recent increase in tariffs and the effects on inflation will affect the buying power of American consumers. That, in turn, threatens U.S. gross domestic product (GDP). Under those circumstances, Altria, the products of which are inflation-proof, may be the best stock to own. That is, if investors can ignore its tobacco business.
