Hold my beer while I grab a smoke

Hold my beer while I grab a smoke

Hey kids, today we’re gonna talk about drugs!

Drugs are bad. Truly. Don’t do ‘em!

Now let me talk to all the adults in the room. You are presumed by other people and by society to be a responsible individual, to be productive and take care of (at least) yourself. This means you have the freedom to enjoy some drugs – of course assuming they are legal where you are! So with further ado, hold my beer so I can present one of my holdings:

Altria Group (NYSE: MO)

Company presentation

Altria is an American tobacco producer. With a market cap of $72 billion, it’s one of the worlds largest companies in tobacco products. Altria operates its business in the Americas while its spin-off Philip Morris International operates the global markets. The most famous brand of the company is Marlboro, the best selling brand in the world since 1972. Altria also has large stakes in various related areas such as:

  • Cannabis via Cronos
  • Smokeless products via U.S. Smokeless Tobacco
  • E-cigarettes via JUUL (not a great acquisition in itself)
  • Wine via Ste. Michelle
  • Beer via Anheuser-Busch (anyone fancy a Budweiser?).

Here is what the company itself writes first of all when presenting their approach: “The future of the tobacco industry is about innovation, harm reduction and informed consumer choice. With FDA regulation of the tobacco industry in place, we focus our tremendous resources and talented people on reducing the risk of tobacco products, while expanding choices for adult consumers aged 21 and older.“

Regarding the future, Altria summarizes its 10 year vision in this picture.

Selected financial metrics

So, lets talk money then. Smoking is in decline, right? Well, let’s look at some of the financials.

Revenue YoY growth

2019: 0,86 %

2018: 0,68 %

2017: 0,81 %

2016: 2,56 %

EBITDA YoY growth

2019: 9,69 %

2018: -1,07 %

2017: 2,56 %

2016: 7,41 %

Free cash flow per share

2019: 4,06 USD

2018: 4,32 USD

2017: 2,45 USD

2016: 1,86 USD

The CEO of the company had this to say in the Q2 report: “With a better understanding of COVID-19 impacts on adult tobacco consumer purchasing behavior and an additional quarter of ABI earnings contributions, we’re reestablishing full-year 2020 adjusted diluted EPS guidance,”

Dividend

Altria is a Dividend King. It has raised the dividend each and every year for 51 years straight. That is insanely good! The forward yield is a staggering 8,8 % and the CAGR for the last 5 years is 10,4 %. This is one of the few plays out there that currently offers both acceptable dividend growth AND a humongous current yield. They actually just raised their dividend by 2,4 %, in the midst of a financial crisis! The payout ratio however, sits at about 80 %, so if one had to categorize Altria as either a high yielder or a dividend grower, it would be a current high yielder. Not a problem for me. Give me that cash!

Why I Invest

As you probably guessed, Altria is a position in my Dividend Portfolio. I hold it primarily for the dividend prospect.

Looking at the stock chart, the last few years hasn’t been great though. I am personally convinced this will turn around sooner or later. This is a company that pays a solid dividend and they have successfully managed their business through many decades. One reason for the decline may be the acquisition of JUUL, which seems to have been a very bad decision. The decision itself obviously reflects poorly on management, but it also weakened the balance sheet of the company.

However, the thinking behind it all leaves me positive. Let me explain. All businesses run the risk of disruption. Something might happen to the broader market of their products, or a new, cool competitor might emerge. In the case of Altria, the company itself is the disruptor. They are thinking forward and understand that the future will probably be different, with smoking numbers being in the decline for decades now. On that note, they are also combating declining numbers with their pricing power – smokers seem content with paying more for their cigarettes.

To summarize, Altria is a forward-thinking diverse power house exposed smoking, smokeless, alcohol. And it comes with fantastic dividend metrics. Can you please hold my beer while I keep holding this company? Then I’ll hold your beer while you comment below why you (or why you don’t…) own Altria.

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