Altria (NYSE: MO) is primarily a tobacco company that is upgrading itself with changing industry dynamics. The health hazards of cigarette smoking and the efforts of authorities to discourage it is gradually shifting consumers away from tobacco and more toward smokeless recreations. This shift prompted Altria to enhance and expand its smokeless product portfolio.
Benefiting from the pandemic-led rise in leisure activities, MO stock has returned 28.2% on investment in the past 3 years; and has been on a northward growth trajectory since a sharp dip in March 2020.
Cannabis, an Interesting Choice of Business
The company is also one of the best cannabis stocks poised to benefit from the recent boom in the cannabis industry. Marijuana stocks started gathering momentum over the past couple of years. First, the Democrats picked up the baton to run the Senate, paving the way for cannabis-friendly federal laws. Following that, Mexico’s legalization of marijuana manufacturing for medical purposes has been a boon for the U.S. and Canada, as both the countries were on the lookout for growth opportunities in Mexico.
Moreover, legalization of cannabis for recreational purposes is also seeing the light of day in various parts of America. In 2021, Bank of America Securities found that legal cannabis sales in the U.S. climbed 40% year-over-year to reach $25 billion.
Thus, the growing clout of cannabis for both medical and recreational purposes has prompted Altria to try its hands in the cannabis industry. The acquisition of 45% stake in the Canadian cannabis company, Cronos Group, in 2019, was a step in that direction.
Efforts to Expand Oral Tobacco Products
Altria has begun to offer several oral tobacco and tobacco-derived products. The company has achieved full global ownership of popular tobacco-derived nicotine (TDN) product on! through its subsidiary, Helix.
Management believes the product has enhanced Altria’s smokeless portfolio. Notably, oral TDN products’ low health risks are gaining popularity in the United States. Altria is focused on widening its manufacturing capacity and pushing the commercial availability of on!.
Dividends Attract Investors
Strong dividends have always been a USP for Altria. The third quarter of 2021 saw the company give out $1.6 billion in dividends. Notably, the company has increased its dividend 56 times in the past 52 years of operations, the latest hike being in August last year.
With an annual free cash flow return on investment of 27.2%, ahead of the industry’s 19.4%, the dividend payment is likely to be sustainable. The company expects to complete the authorized expansion of its share repurchase program ($3.5 billion) by December 31 this year.
Experts Weigh In
On January 26, Cowen & Co. analyst Vivien Azer reiterated a Hold rating on the MO stock while raising the price target to $51 from $48.00.
The rest of Wall Street also seems to be positive, yet cautious, of Altria’s near-term performance. Notably, 3 analysts have rated the stock Buy while 4 have given a Hold rating. The average MO price target is $52.
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