A relatively serious consumer staples business like Altria (New York Stock Exchange: MO) may not make investors’ hearts race, but it offers investors multiple ways to win. Altria has a recession-resistant defensive business. The company returns a significant amount of capital to shareholders and the shares are trading at a cheap valuation. These factors combine to make Altria an attractive stock, which leaves me optimistic.
A defensive business that has stood the test of time
Altria is a defensive and recession-resistant company. This Virginia-based $84 billion tobacco giant was founded in 1822 and has stood the test of time for more than 200 years.
Altria sells cigarettes and other tobacco products in the United States and is best known for its Marlboro brand. Other popular cigarette brands in its portfolio include Parliament and Virginia Slims. Altria is also home to leading chewing tobacco brands such as Copenhagen and Skoal.
In addition, Altria sells in! nicotine pods These products are a key component of Altria’s plans to lead the transition to a smoke-free future.
This is a financially resilient business because customers who smoke tend to routinely and habitually purchase cigarettes. For the most part, they are unlikely to stop buying cigarettes due to an economic slowdown. They are also unlikely to go down from your preferred brand.
This gives a lot of stability to Altria’s business, as evidenced by its incredible longevity and slow but steady EBITDA growth in recent years. Altria was able to increase its EBITDA last year in an environment where many companies were struggling to cool consumer demand.
Altria’s valuation is resoundingly cheap
Altria shares are trading at just over 9 times the consensus 2023 earnings of $5.01 per share, which is a steep discount to the broader market. For example, the S&P 500 (SPX) is currently trading at a multiple of approximately 20 times 2023 earnings. I won’t argue that Altria doesn’t deserve some level of market discount, given that cigarettes are not a high-growth industry. However, this huge discount seems too drastic.
Altria’s business is not just a melting ice cube. The company increased adjusted diluted EPS by 5% for fiscal 2022 and expects to increase adjusted diluted EPS by another 3-6% this year.
Altria has made some missteps in recent years, including investments in Juul Labs and the cannabis company Cronos (NASDAQ:CRON) that failed. However, at this point, these bugs are in the rear view mirror, and Altria seems to have learned its lesson. Management is focused on balancing return of capital to shareholders with building its smoke-free business. This seems like a sensible strategy.
A dividend king with amazing returns
Even if one wants to argue that Altria is fair value and that the stock price will not appreciate at all from now on, Altria can still provide investors with good returns in the future. This is due to its amazing dividend yield of more than 7.9%. This monstrous return is about five times the average return of the S&P 500. It’s also more than double the return investors could earn by investing in 10-year Treasury bonds.
Altria not only pays a huge dividend, but has also increased its dividend like clockwork for over five decades. The company has an outstanding 53 consecutive years of dividend increases to its credit. This demonstrates the high priority it places on the constant reward of its shareholders.
In addition to returning large amounts of capital to shareholders through its dividend, Altria also rewards shareholders with share buybacks. The shares have just been announced fourth quarter earningss, and unveiled a new $1 billion share buyback program. Share buybacks can benefit shareholders because they reduce share counts over time and increase earnings per share. They can also be seen as a sign that management believes its shares are undervalued and provide support to the share price.
Is Altria Stock a Buy, According to Analysts?
Sell-side analysts are split on how they view Altria: One analyst views Altria as a Buy, while three call it a Hold and two call it a Sell, resulting in a Hold consensus rating. He Altria stock average price target of $47.20 is in line with current trading in Altria shares.
Food to go
I’m more bullish than the consensus given Altria’s 7.9% dividend yield, undemanding valuation and resilient business. Even if the stock price doesn’t rise much in the next few years, receiving a 7.9% dividend yield like this over the course of several years can generate a very strong return for investors over time. This compelling combination of dividends, share buybacks, and cheap valuation offers investors multiple ways to earn with Altria stock.
