Altria Group (NYSE:MO) is a cash dividend-paying company. It has been paying cash dividends continuously since 1989, according to the company’s dividend information page.
Therefore, Altria has been a dividend payer for a little over 30 years as of 2021.
In fact, Altria has increased its dividend rates year over year without fail for the past 30 years.
In this article, we will look at Altria’s dividend yield, dividend history, payout ratio with respect to earnings and free cash flow to find out whether Altria’s stock deserves the attention of income investors.
Let’s move on!
Altria’s Dividend Yield
Let’s first look at Altria’s historical dividend yield as shown in the chart above for the period from 2015 to 2021.
As seen in the chart, Altria’s trailing dividend yield has been rising steadily in the last 6 years, thanks to the company’s falling stock price during the same period.
However, the falling stock price is only partially contributing to the soaring dividend yield.
Between 2015 and 2021, Altria has been continuously raising its dividend rates, partly causing the yield to soar.
In fact, the dividend payout in the latest quarter of 2020 Q4 was the highest since 2015.
Historically, Altria’s trailing dividend yield hovered around 4%. But the yield has risen to nearly 10% in 2020, primarily attributed to the plummeting stock price during the onset of the COVID-19 outbreak.
As of March 2021, Altria’s stock price has recovered significantly and the dividend yield has dropped slightly to 7.7%.
At the current rate, Altria’s dividend yield is one of the highest in the S&P500.
Additionally, the 10-Year U.S. Treasury yield of 1.5% pales considerably when compared to Altria’s latest dividend rate that yields nearly 8%.
Altria’s Dividend Declared – Quarterly
The chart above shows Altria’s quarterly dividends declared in the last 6 years from 2015 to 2020.
On a quarterly basis, Altria’s cash dividends paid to common stock shareholders have risen steadily over the last 6 years.
Additionally, Altria has never missed a single payout during the same period and has even raised the cash dividends by 2% to $0.86 per share in 3Q 2020 from the prior quarter when the COVID-19 pandemic was at its peak.
Altria’s business operation seemed to defy the COVID-19 disruption.
Unlike other companies such as Ford and General Motors which totally suspended their cash dividends even before the COVID-19 pandemic became mainstream, Altria has kept its quarterly payout unchanged and even raised the dividend rate to a new high.
As of 4Q 2020, Altria’s quarterly cash dividend of $0.86 per share was a record high for the company and shareholders.
Altria’s Dividend Declared – TTM
From a trailing 12-month or TTM standpoint, the uptrend of Altria’s cash dividend is even more obvious.
As seen in the chart, Altria’s dividend was only a little over $2.00 per share back in 2015.
However, this amount has risen to as much as $3.40 per share as of 2020 Q4 on a TTM basis, representing an increment of nearly 60% between 2015 and 2020.
Altria’s relentless dividend increment is nothing short of extraordinary considering that the company’s sales have remained relatively flat between 2017 and 2020 according to this article, Altria’s Sales Revenue.
While Altria’s recent stock price may have remained depressed, its dividend rates have been a different story, which partly explains the rising yield that hit nearly 8% in March 2021.
Perhaps, it’s time to add more Altria’s stocks now while they are still undervalued.
Altria’s Adjusted Earnings Per Share – TTM
A dividend discussion will not be complete without covering the earnings per share topic.
As such, an EPS plot is plotted in the chart above for the period from 2015 to 2020 on a trailing 12-month or TTM basis.
Why earnings per share you may ask?
The reason is that the earnings per share or EPS reflect the profitability of a company. From studying the EPS, investors can find out the final profit per share a company makes after accounting for all expenses that the company has incurred in a financial period.
Furthermore, a number of dividend-paying companies determine their final dividend payout based ultimately on the EPS.
It’s no exception for Altria.
The following paragraph shows an excerpt taken from Altria’s 2020 4Q earnings release that depicts the company’s dividend policy:
Altria Dividend Policy
“Altria has a long-term objective of a dividend payout ratio target of approximately 80% of adjusted diluted EPS. Future dividend payments remain subject to the discretion of Altria’s Board.“
Based on the above quote, Altria uses the EPS, the adjusted diluted EPS in particular, as a yardstick or metric to determine its cash dividend payout.
For this reason, the EPS is an extremely important metric that investors should pay attention to when it comes to analyzing Altria’s dividend.
According to the chart above, Altria’s TTM EPS has been on a rising trend between 2015 and 2020, reaching multiple new highs throughout 2020.
As of Q4 2020, Altria’s adjusted diluted EPS reached $4.36 per share on a TTM basis.
The rising trend for Altria’s EPS is extremely important because it means a rising dividend since the company bases its dividend rate according to the payout ratio measured using the EPS figure.
As long as Altria’s earnings per share or the EPS rises, dividend investors can rest assured of a rising dividend as well.
Altria’s Dividend to Earnings Payout Ratio
As mentioned, Altria’s dividend policy is to pay out close to 80% of its earnings as dividends.
Let’s take a look at the company’s historical earnings payout ratio as shown in the chart above for the period from 2015 to 2020.
Based on the chart, Altria’s dividend to earnings payout ratio has been quite steady for the last 6 years, averaging around 77%.
The earnings payout ratio declined close to the 70% level during 2018 but rose back to the 80% level in 2020.
As of 2020 Q4, Altria’s dividend to earnings payout ratio stood at 78%.
While the earnings payout ratio has remained relatively unchanged, Altria has managed to tick up the dividend rate, thanks to the rising EPS all these years.
In short, Altria’s expanding EPS coupled with a generous dividend policy that pays close to 80% of its earnings as dividends makes the company a powerful compounding machine for dividend investors.
Altria’s Cash Paid on Dividend
A talk of Altria’s dividend without diving into the company’s cash flow is like eating a pizza that comes without the cheese.
Therefore, a plot of Altria’s cash paid on dividends is created in the chart above for the period from 2015 to 2020.
The cash paid on dividends metric measures Altria’s cash outflow that goes directly to common stock dividends and is extracted from the company’s cash flow statement under the cash used for investing activities section.
Readers who are not familiar with cash used for investing activities may find this page helpful – Cash Flow From Investing Activities.
All told, Altria’s cash paid on dividends has been rising steadily between 2015 and 2020, with the latest quarter 4Q 2020 reporting the highest figure at $6.3 billion on a TTM basis.
Altria used to pay out a little over $4 billion in cash as dividends back in 2015, but this figure has risen to as much as $6 billion in 2020.
It’s very important to see a rising trend in terms of the cash paid on dividends as it indicates a growing dividend as well since dividends are paid literally out of cash.
All in all, Altria’s shareholders will be glad to see the persistent uptrend of the cash paid on dividends as reflected in the chart above.
Altria’s Dividends to Free Cash Flow Payout Ratio
While Altria may have paid out loads of cash as dividends in the past, it does not necessarily mean that Altria could afford the cash dividend payout.
In this aspect, we will dive into Altria’s dividend to free cash flow payout ratio to find out whether the company had generated enough free cash flow to cover the dividend payout.
A plot of Altria’s dividend to free cash flow payout ratio on a TTM basis is created in the chart above for the period from 2015 to 2020.
Readers who are not familiar with free cash flow can find out the definition here – what is free cash flow.
In general, free cash flow is calculated by substrating capital expenditures from operating cash flow as shown in the equation below:
Free cash flow = Operating cash flow – Capital Spending
Coming back to the chart above, Altria’s free cash flow payout ratio has also been on the high side, near to the 80% level as of 2020 Q4.
In the early years such as in 2016, the ratio soared above 120%, indicating that Altria’s generated free cash flow was insufficient to cover the cash paid on dividends.
However, the free cash flow payout ratio declined over the years and reached around 80% in 2020, which was about the same as the earnings payout ratio.
The downtrend of the ratio indicates Altria’s growing free cash flow with respect to the cash paid on dividends.
Additionally, Altria has been having a stable and growing free cash flow, as reflected in the steady payout ratio which stood at around 80%.
At this ratio, Altria has enough free cash flow to cover the dividend payout, which means the company’s business operation has the necessary means to generate cash to afford a cash dividend payout.
Although Altria has continued to increase the cash paid on dividends all these years, the payout ratio seemed to be consistent at the 80% level, thanks to the company’s stable and growing free cash flow generation.
While Altria may have been a cash cow, shareholders need to watch this ratio from quarter to quarter to make sure that it doesn’t get out of hand considering that the company is paying out as much as 80% of the free cash flow as dividends.
If this ratio has continued to exceed 100% for a number of quarters and the dividend rate has stalled, Altria’s shareholders may want to consider bailing out of the stocks.
Altria’s Annual Dividend Declared
On a yearly basis, Altria has been a consistent dividend payer without fail, as reflected in the growing dividend rates shown in the chart above.
As seen in the chart, Altria’s dividend rate stood at $3.40 per annum in 2020, a record high for the company and shareholders.
Keep in mind that Altria has been paying dividends since 1989 as opposed to the results shown in the chart above which depicts only the 10-year dividend history.
All in all, for the last 10 years, Altria’s dividend rates have grown by more than 130%.
Altria’s Annual Cash Paid on Dividends
Similar to the annual dividend rates, Altria’s annual cash paid on dividends has also been growing quite significantly for the last 10 years.
Between 2010 and 2020, Altria’s cash outflow for dividends has grown by more than 100%, hitting a new high at over $6 billion as of 2020.
The growth in cash paid on dividends is consistent with the uptrend seen in the dividend rates.
To grow the cash dividend per share, Altria has to increase the cash paid on dividends.
Unless the common stocks outstanding is significantly down, either through stock buyback or other means, Altria will have to increase the cash paid on dividends in order to grow the cash dividend per share.
Altria’s Annual Dividends to Earnings Payout Ratio
The chart above shows Altria’s annual dividends to earnings payout ratio for the period from 2010 to 2020.
According to the chart, the earnings payout ratio has been quite consistent at about 77% for the last 10 years.
The annual ratio is similar to what we saw earlier in the TTM chart.
As discussed, Altria plans to pay out as much as 80% of its earnings as dividends.
In short, Altria has a very generous dividend policy and plans to return most profits to shareholders.
Altria’s Annual Dividend Growth Rates
The chart above shows Altria’s dividend growth rates on a yearly basis.
For the last 10 years, Altria has grown its dividend rates at a high single-digit of roughly 8%.
However, the growth rate declined significantly to only 4% in 2020.
While most companies have either cut or totally suspended their cash dividends in 2020, Altria has kept the dividend payment steady and even raise them by 4% year on year in the middle of a devastating pandemic.
When the COVID-19 struck the hardest in 2020, most businesses have either faltered or scaled back on cash outflow, particularly in dividend payments.
However, Altria’s businesses have remained resilient during a pandemic outbreak.
History has shown that even a significant economic slowdown would have a muted impact on Altria’s dividend growth.
All in all, Altria’s cigarette and oral tobacco businesses are both recession and pandemic proved.
Is Altria a good dividend stock? I bet it does according to the following pointers which have been thoroughly discussed in this article.
1. Altria’s dividend yield is currently at 7.7% based on the TTM dividend rate of $3.40 per commons share.
2. Altria has continuously increased its dividend rates without fail for the past 30+ years except when there was a spin-off of the businesses.
3. Altria has paid cash dividends for more than 30+ years since 1989 and will most likely continue to do so in the future.
4. Altria’s cigarette and oral tobacco businesses are recession and pandemic proved considering that the company has raised by 4% the dividend payout in 2020 when the COVID-19 pandemic hit the hardest globally.
5. Altria has a generous dividend policy in which close to 80% of its earnings will be paid out as dividends.
6. Altria has been a cash cow, judging from the growing cash paid on dividends year over year and the consistent dividends to free cash flow payout ratio which hovered around 80% for the last 6 years.
References and Credits
1. All information including financial figures and data discussed in this article was obtained and referenced from financial statements obtained through the company’s official website: Altria SEC Filings.
2. Some numbers and ratios are the author’s own calculation.
3. Featured images in this article are used under creative commons license and sourced from the following websites: Ivan Radic.
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