Tobacco companies have long been known for offering rich dividends. Altria (MO, Financial) is one such company. It is a dividend aristocrat. Despite hailing from an unhealthy industry, this company has a huge customer base. This company is known for becoming investors’ staple. It has a leading position in the U.S. tobacco space. It competes with premium brands and boasts of higher margins than most of them.
Its flagship brands include the likes of Marlboro, Skoal smokeless tobacco and Black & Mild cigars. The company also owns a wine business.
Third quarter results
Altria’s 2014 third-quarter reported diluted earnings per share (EPS) increased 1.4% to $0.71, as comparisons were affected by special items. Third-quarter adjusted diluted EPS, which excludes the impact of special items, increased 6.2% to $0.69. In August 2014, Altria’s board of directors (Board) increased the regular quarterly dividend by 8.3% to $0.52 per share. MO reaffirms its guidance for 2014 full-year reported diluted EPS to be in a range of $2.54 to $2.59.
“Our business results are on track,” said Marty Barrington, chairman and chief executive officer of Altria. “We grew adjusted diluted EPS 6.2% in the third quarter behind strong income performance by our smokeable products segment, our companies’ leading premium brands and the strength of our diverse business model. Nu Mark continued its national expansion of MarkTen and continues to develop a robust product pipeline,” said Barrington.
Wine segment
In the wine segment, Ste. Michelle grew 2014 third-quarter net revenues and OCI by 3.4% and 10.7%, respectively, primarily due to increased shipments. For the first nine months, net revenues grew by 4.1% primarily due to increased shipments and higher pricing. Ste. Michelle’s OCI grew by 11.0% in the first nine months due to higher pricing and increased shipments, partially offset by higher costs. Revenues net of excise taxes increased 3.5% in the third quarter and 4.3% for the first nine months of 2014. Ste. Michelle’s OCI margins expanded 1.3 percentage points in the third quarter to 20.9% and 1.2 percentage points in the first nine months to 19.6%.
Share repurchases
In the third quarter of 2014, Altria completed the prior $1 billion share repurchase program. In July 2014, the Board authorized a new $1 billion share repurchase program, which Altria expects to complete by the end of 2015. During the third quarter of 2014, Altria repurchased approximately 6.4 million shares of its common stock at an average price of $42.87 for a total cost of approximately $275 million. Altria had approximately $778 million remaining in the current $1 billion share repurchase program. The timing of share repurchases depends upon marketplace conditions and other factors. The program remains subject to the discretion of the board.
Dividends
In August 2014, the Board increased the regular quarterly dividend by 8.3% to $0.52 per share versus the previous rate of $0.48 per share. The current annualized dividend rate is $2.08 per share. As of October 24, 2014, Altria’s annualized dividend yield was 4.4%. Altria paid $952 million in dividends in the third quarter and $2.9 billion in the first nine months of 2014. Altria expects to continue to return a large amount of cash to shareholders in the form of dividends by maintaining a dividend payout ratio target of approximately 80% of its adjusted diluted EPS. ( Source: Company’s Website)
Growth opportunities
Nu Mark LLC (Nu Mark) continued its national expansion of MarkTen e-vapor products during the third quarter of 2014. MarkTen achieved distribution in approximately 80,000 retail stores, primarily in the western half of the U.S. As of September 30, 2014, MarkTen continued to be ranked in the top three e-vapor brands in the western U.S. based on retail market share. Nu Mark plans to further expand MarkTen in the eastern half of the U.S. and complete its national expansion in the fourth quarter.
Altria is looking forward to gaining big from the emerging markets, which look promising enough. These markets have much lower taxes when compared to the European counterparts. Many parts of Asia and Africa have lower excise duty.
The future looks promising for this company and in 2015 the company may grow to new heights, when shares may jump higher of 7.8%. The company pays good dividends and is in a position to satisfy hungry investors.
To end
Altria group has a domestic market share of about 50%, which makes it dominate the U.S. market. There is a decline in smoking rates, and the regulations are increasing. It is safer to invest in this company since people prefer the same brands over and over again. It has a steady balance sheet. The diversion into the e-cigarettes will certainly add fuel to its growth.
Many have thought that the cigarette industry is a sunset industry because of the social stigmatization attached to it. But there is a silver lining to it since an increasing number of people are moving towards e-cigarettes. Out of the global $169 billion tobacco industry, about $6 billion comes from e-cigs. The U.S. is the largest e-cig market worth $1.7 billion as of 2014. This company has plenty of room for growth and to offer to its shareholders.
MO is continuously ramping up its innovation process. It is taking the right initiatives to gain market dominance. This trend is going to continue. MO is all set to build out a solid international presence, and it may be rightly said that it will find many tobacco huffers. Investors who have no issues with these companies should definitely consider taking up this company for consideration. It has been known for pumping steady returns to its shareholders. Altria is poised to grow further in the near future creating shareholder returns.
