Altria stock (NYSE: MO) has struggled to gather enough investor confidence in recent months, with shares trading relatively flat year-to-date. This is despite the S&P 500 (SPX) rallying by about 12.4% during the same period and Altria offering a juicy yield of 8.3%. In my view, however, there is a strong chance that the company will see increased investor appreciation in the coming months. Indeed, another dividend increase is coming soon, which should further attract the interest of income-oriented investors. Hence, I am bullish on the stock.
Altria has Robust Sales despite Lasting Concerns
Regarding Altria’s sales, there have been lasting concerns for years regarding the potential of a prolonged decline. With investors betting on the narrative of a declining smoking population moving forward, it makes sense that the market fears that Altria’s sales are constantly under threat.
While it’s true that the global population has been on a constant decline for decades now, the rate of this decline is modest at best. In fact, Altria has managed to increase its revenues in the meantime, as strong price hikes tend to overpower the modest decline in sales volumes. For context, Altria generated sales of $19.0 billion during the past 12 months, which compares to $18.6 billion and $15.9 billion for the equivalent period in 2020 and 2018, respectively. This clearly illustrates Altria’s ability to sustain an elevated top line against a weak sentiment.
Therefore, despite a 2.9% decrease in Altria’s sales during the first quarter of 2023, it is important to recognize that this decline aligns with the seasonal patterns observed in the past. As I explained, such fluctuations are common and do not contribute to a broader narrative of declining sales.
Focus on Altria’s Profitability More than Sales
Altria’s sales growth is much less significant for investors than the company’s profitability prospects. This is because Altria’s profitability directly influences its ability to pay dividends in the future, which is what most shareholders are primarily concerned with, given the stock’s dividend-driven status.
During the first quarter, Altria reported a noteworthy increase in adjusted diluted earnings-per-share, rising by 5.4% to $1.18. This growth can be attributed to several factors, including a decrease in the number of outstanding shares, higher adjusted earnings from Altria’s investment in ABI, and favorable interest expenses.
The company’s solid cash flows, ongoing cost-cutting initiatives, reduction of debt, and share repurchases are expected to continue driving earnings-per-share growth, as management’s guidance suggests. Specifically, Altria’s management forecasts that adjusted diluted earnings-per-share should be between $4.98 and $5.13 for the year, reflecting a growth rate ranging from 3% to 6%. Remarkably, this forecast suggests that Altria is set to achieve a new record for adjusted earnings-per-share, despite the prevailing negative sentiment surrounding its shares.
Upcoming Dividend Increase to Rally Investors
With Altria’s profitability set to reach new records this year, the company should once again comfortably raise its payouts this August. Altria has traditionally raised its dividend during summer, and with four $0.94 quarterly payments already made, investors can be more or less certain that another hike is on the way. After all, Altria has consistently raised its dividend every year for the past 53 years.
Regarding how significant the upcoming dividend increase could be, I would expect it to land in the mid-single digits. This aligns with Altria’s latest dividend increase of 4.4% and its 5-year CAGR dividend growth rate of 6.0%. In the meantime, the 75% payout ratio and Altria’s matching earnings-per-share growth projection for fiscal 2023 should easily support such a hike.
Is Altria Stock a Buy, Sell, or Hold?
Turning to Wall Street, Altria stock has a Moderate Buy consensus rating based on four Buys, four Holds, and one Sell assigned in the past three months. At $48.33, the average Altria stock price prediction implies 6.74% upside potential.
That said, it’s worth noting that Wall Street analysts have lacked meaningful insight when assessing Altria stock. For context, the most profitable analyst covering the stock (on a one-year timeframe) is Owen Bennett from Jefferies, with an average return of -0.99% per rating and a 40% success rate, which doesn’t really make for a bright performance.
Takeaway: Altria is an Anti-ESG Diamond in the Rough
Shares of Altria continue to attract little to no interest from Wall Street. With few analysts covering the stock and most funds avoiding buying shares due to the company’s anti-ESG profile, it’s hard for the stock to build any momentum. That said, with the company’s earnings-per-share set to hit another record this year and an upcoming raise to the quarterly dividend, investors may grow increasingly interested in the stock.
Further, Altria’s ability to produce growing profits with an impressive degree of predictability, given the recession-proof nature of its business model, along with its dividend yield, which is already hovering at a substantial 8.3%, gives investors a lot to like.
