Altria Group (MO) is a consumer staples giant featuring a market cap of $91.2 billion. The company is mostly known for the Marlboro cigarette brand in the U.S. and some other non-smokable brands, including Skoal, Copenhagen, and the Ste. Michelle brand of wine.
However, Altria also holds a 10% equity stake in global beer giant Anheuser Busch Inbev, a substantial stake in Juul, the manufacturer and distributor of a vaping product, and a stake in the cannabis company Cronos Group (CRON).
While investor interest in tobacco stocks has declined significantly over the years amid increased risk and ethical concerns, I believe that due to Altria’s strong capital returns and attractive valuation, the stock is poised to deliver strong total returns next year. Regardless, I am neutral on the stock.
Why Altria Is One of the Better Dividend Picks in 2022
The first reason Altria is a great dividend pick in the current, highly-inflationary environment is its resilient business model. Inflation surged 7% in December, the biggest leap since 1982.
Due to Altria’s products being deeply inelastic, their demand is hardly impacted by such economic events as inflation. Altria, as a result, can even profit from lifting prices in line or even higher than inflation without noting a meaningful drop in sales. Hence, the company’s dividend growth prospects are not impacted by the ongoing inflationary concerns.
The second reason is that Altria’s tremendous dividend yield of 7.3% is well-covered and provides a great margin of safety, aiding the predictability of investor returns in the current volatile trading environment.
The quality of Altria’s dividend has been illustrated for decades, with the company boasting the title of “Dividend King,” – the unofficial term that investors attach to companies that have managed to increase their dividend annually for more than 50 consecutive years.
Altria has grown its dividend annually for 52 years, with its latest increase being by 4.7% to a quarterly rate of $0.90.
The dividend is well-covered, with the payout ratio at around 78.2% at the midpoint of management’s latest guidance. Moreover, considering the company’s strong share repurchases, the dividend should be considered rather safe from this point of view as well since, If otherwise, management would likely decelerate or stop buybacks before touching the dividend. For this reason, there is likely one more coating of safety here.
Finally, I am particularly interested in Altria because the stock is quite reasonably valued. Its P/E ratio at the midpoint of management’s guidance stands at just about 10.7, which should be considered rather inexpensive. From a forward P/E standpoint (next year’s earnings), the multiple stands at 9.51, which is near the lower range of the stock’s historical valuation.
Wall Street’s Take
Turning to Wall Street, Altria Group has a Moderate Buy consensus rating based on five Buys and three Holds assigned in the past three months. At $51.88, the average Altria Group price target implies 3.3% upside potential.
Conclusion
I am neutral on the stock, but only due to Altria’s future returns likely to be sourced predominantly from its dividend payments. That said, I believe Altria is a top dividend stock that can cater to income-oriented investors quite well through 2022 due to the reasons suggested above.
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