Tuesday, June 7, 2011

Altria Has A Fat Dividend

Investors actively seeking dividends should turn their attention to tobacco stocks. Investing in tobacco stocks is an ethical question for some investors and a solid investment for others. All investors have to agree that the sector does present some incredible dividend opportunities. Tobacco companies have long been favorites of dividend investors.
 

Altria is the largest tobacco company in the United States with a market cap of $56 billion dollars. Altria has been around for a long time as the company used to exist under its old name Phillip Morris Companies. The Altria Group has holding in both the tobacco and wine industry. The company is currently paying out a dividend of $1.52 per share and has a fat dividend yield of 5.5%. This yield is actually low compared to the 5 year average of 10%.

Altria is not as a growth stocks as the company has been able to grow in the single digits for the current years. Even optimists are only expecting growth of 8% per annum over the next five year. So, why is the stock attractive? The Altria Group has been known to repay earnings growth back to investors in the form of dividends. The company current pays out about 75% of its earnings via dividend distributions. That would seem high for most companies but not Altria.

The biggest barrier to the company is regulatory requirements and lawsuits. Tobacco companies are easy fodder for trial lawyers and regulatory agencies which are always dragging them into court. Tobacco companies earnings can be severely hampered by lawsuits and settlements that may occur in the industry.

Altria is an earnings machine with more than $17 billion dollars in revenue and $3.6 billion in cash flow. The stock currently trades at 13 times this year’s earnings which is below the industry average. At $27 a share, the stock is not an absolute steal but it is a decent safe haven for investors looking for dividends in a rocky market.
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