Dividendology 对 $MO 的判断变化

It's been a long time since I've covered Altria Group stock ticker M O. But with some of the recent news, such as the earnings report that they just released, as well as the news of a new dividend hike, I think it's a good time to revisit Altra and analyze where the stock is at right now.

Take a closer look at the sustainability of their high yield dividend and analyze whether or not it's interesting at its current prices. And for complete transparency, like always, this is a stock that I own in my personal portfolio.

If we blow up my growth chart, you can see I'm up over 82% on my Altria position. And perhaps what's even more interesting is if we jump over to my dividend dashboard and blow up my yield on cost, I'm quickly approaching a 10% yield on cost with this position.

And keep in mind, this doesn't even include the recent dividend hike they just announced, which for reference came in at roughly around 4.7%, which for Altra is a very solid dividend increase.

Now, let's talk for a moment about when I initially added Altria to my portfolio. You can see there was a long stretch of time when it was trading in the low $40 range and at one point even dipped down into the $39 range.

And really, it was late 2023, early 2024 when I added with an average price of roughly around $40 a share. And at that point, what's really interesting is this was a very high yielding stock.

Take a look at the historical yield over the last five years. At multiple points, this stock was yielding well over 8% and in some cases even 9 to 9.5%.

And initially, when people see a headline yield that high, particularly for a single stock, the initial inclination is to believe that that's not a sustainable yield. This is likely a very dangerous stock, but the reality is the yield by itself doesn't tell you whether or not a stock is risky or not.

Ultimately, it always comes down to a company's fundamentals. And let me show you what I was seeing back then. Just on a high level, if we go ahead and jump over to our dividend breakdown sheet, let's go ahead and zoom out a little bit and come up here and plug in stock ticker MO for Altria.

Now, what you'll notice is when we start to break this down, first off, the company's still yielding a pretty high yield at close to 6.3% and this is a dividend king stock with over 50 consecutive years of dividend increases.

But what you'll notice is Altra is consistently covering those high yields, their high dividend payouts with free cash flow. Now, what's really interesting about this, it was just a few years ago where due to a multitude of reasons, their earnings looked quite low.

For example, if we jump over to our stock screener again, let's zoom out and take a closer look at Altra stock ticker MMO. What you can see is earnings per share have been a bit choppy.

But the reality is that dividends are paid out of free cash flow. And free cash flow has been covering those dividend payments every single year.

Now, what's also important to point out is they're typically using close to around 80% of their free cash flow to pay out dividends. Is that a red flag? Well, the reality is the answer depends. It depends on a multitude of factors because in a lot of cases an 80% free cash payout ratio is a bit concerning.

But what management has actually told us in the past is that those 80% free cash flow payout ratios is exactly what the management team is targeting. They understand capital allocation. They understand where the opportunities are for Altria and they realize that the best way to reward their shareholders right now is in the form of a dividend.

Now, here's what's interesting about that. Typically, if a company has phenomenal reinvestment opportunities, if they're generating a high return on invested capital, they typically shouldn't pay out as much in dividends. They should be reinvesting back into the business.

Well, Altria actually generates a very high return on invested capital. For three consecutive years now, really, four consecutive years, it's been above 30%. Now, the reality is we need to ask ourselves, how have they been able to generate such a high return on invested capital?

Well, the reality is because they're reinvesting very little, it makes it easier to generate a high ROIC. The company's already using 80% of its free cash flow to pay out dividends. On top of that, they do share buybacks as well.

So, ultimately, because they're reinvesting such small amounts back into the business, it makes it relatively easy to generate a high level of ROIC.

So, yes, it is impressive, but don't let this mislead you. Now, going back to the dividend, even with a 6.3% yield, you can see the 5-year dividend cag at roughly 3.8% and with the recent dividend hike of 4.7%, that'll be growing in the future.

So, the dividend metrics are still quite attractive. The real question we need to be asking is whether or not dividend growth is actually going to be sustainable or not in the future. Because here's the reality for Altra right now. Everybody knows this, but the smokable product segment continues to see declines.

And this is true across America, across the world. In reality, in the recent quarter, their smokable product segment saw declines of about 4.5%. The quarter before that, it was around 4%.

Now, what's interesting is they're actually declining. Yes, that is true. But that decline is slower than that of the total industry. At least it has been over the last couple of quarters. So, in other words, they're technically gaining market share, as ironic as that sounds. But how big of a concern is this actually for Altra?

Well, there's something we have to take into consideration. What the data actually tells us, and I was talking about this over on X just the other day. Sales growth is the key driver of long-term stock performance, sources of total shareholder return.

If you come over here, you can see over 10-year time period, sales growth, which really means revenue growth, is the ultimate driver of returns over the long term. Now, why is that the case? Well, it's because ultimately stock prices grow when free cash flow per share is growing. And there's no easier way to grow free cash flow than to grow revenue.

Now, that being said, it's difficult for Altra to grow revenue if their smokable product segment is continuing to decline. But here's what we really need to take into consideration. If we jump over to our profitability sheet and look at Mo, all the data will load into my spreadsheet.

Now, one of the things you'll notice is Altria has a 5-year revenue cagger of 0.68%. So, revenue has been declining over the last 5 years. But how is that possible? Because we see free cash flow has continued to climb higher.

Well, the answer is relatively simple. They've been able to expand their profit margins considerably over the last five and 10 years. In fact, I'd even argue substantially. Back in 2015, the gross profit ratio was sitting at 58.95%. As of the end of 2025, it was sitting at 72.21%. That's just absolutely incredible growth in the profit ratio. What does this mean? Well, it means they have incredible pricing power.

Yes, volumes have been declining, but they've been able to do more than just offset this with the company's pricing power. And more than anything, this is the biggest advantage for Altria. So, the ultimate question has all of a sudden become, can their pricing power continue to offset the declines in their smokable product segment?

So far, it's been able to do that. However, I don't know if that's the type of thing a company can continue to do forever. Of course, something else that would have the ability to offset the dividend would be if the company was in a weak position from a balance sheet perspective, but fortunately this is something obviously management is well aware of.

We can see they're sitting at a very comfortable debt to Ebida ratio sitting at just 1.9 and in recent earnings reports they've told us that their target leverage ratio is 2.0.

So they're even a little bit below their target ratio. So ultimately they're sitting in a very sweet spot when it comes to the balance sheet. But now, let's talk about the recent earnings report for just a moment. And we'll just start by jumping to what the outlook looks like.

They narrowed their fullear 2026 guidance for diluted EPS to be in a range of 561 to 572. Here's the key. Representing a growth rate of 3.5 to 5.5% from a base of $542 in 2025.

So, this growth rate is absolutely critical. 3.5% to 5.5%. if they can grow free cash flow somewhere in that range, which keep in mind, yes, they are referring to adjusted diluted EPS, but a lot of the times there's some correlation with free cash flow.

If they can grow free cash flow in this range, then obviously the dividend can continue to grow in that range as well with it still staying at an 80% free cash flow payout ratio. That's just simple math.

So ultimately, this is a good sign and it's the reason the company felt comfortable increasing the dividend by around 4.7%. It's because earnings and free cash flow growth is projected to stay within that range.

Now, one of the key concerns investors have had for this stock and management as well for quite some time right now is the issue of illicit vaping. The CEO stated elicit flavored disposable products remain prevalent and frame the need for a more efficient authorization process and consistent enforcement over time.

Now, why is this such an issue for Altra? Well, ultimately it accelerates cigarette declines and undermines their legal product advantage.

So, if legally speaking, these laws could be better enforced, it'd be a huge advantage for Altra. So, I wouldn't be surprised if we see some lobbying in the future if they're not already.

So, that's the background on Altra. Right now, the dividend still looks like it's in a very strong position. It's it's right in the target free cash payout ratio range. We just saw a 4.7% dividend increase.

Ultimately, we still need to ask the question after the runup the stock has seen, particularly since the March of 2024, is it still interesting at current prices?

And the reality is it is trading at a bit of a premium from a PE multiple perspective compared to its 5-year average. That's true.

But what's also true is the stock was undoubtedly deeply undervalued, trading in that 8 to9 PE multiple range when the stock was around $40 to $39 a share. So what does the valuation truly look like for this stock? Well, let's go ahead and answer that by jumping over to our stock valuation sheet.

All the data will load in thanks to ticker data. And there's a couple of different valuations that I want us to take a close look at. And we'll start by looking at our discounted cash flow analysis. Now, if we go ahead and zoom in, let's consider a couple of different things. First off, we have Q2 data. So, let's plug that in. And here's what's really interesting for Altra.

Right now, if we just assume 0% free cash flow growth over the next decade, which for reference, I do think it'll certainly be higher than that. The stock is already worth about $61 a share.

The company's currently trading at $67 a share. So, the company doesn't need a lot of growth to actually hit its fair value. What if they can achieve 3.5% free cash flow growth? Well, all of a sudden, the stock is worth about $7361 per share, implying around 9% upside from current prices.

If we're a little more optimistic, if they can hit that 4% free cash flow growth range, all of a sudden, we're closer to $76 a share, implying almost 12% upside.

And even on the very low end at just 2% annual free cash flow growth over the next decade that would put the stock right at fair value. So, ironically enough, from a DCF perspective, there is still a little bit of a margin of safety priced into this stock because I do expect free cash flow growth to be closer to that 3% range.

So, maybe not substantial upside from a DCF perspective, but I do think there is still some upside. Now, if we go ahead and jump over to our dividend discount model, again, we're valuing the stock based on how much they pay out in dividends and how much that dividend will grow in the future.

And here's what's so interesting. If we just assume they grow the dividend in the future at a rate of 3%, the stock is worth about $78 a share, implying 15% upside. So, if we just jump over to our output tab and average the two valuations that we used, we come to a fair value of close to $75 a share, implying almost 10% upside.

So with a 10% margin of safety, the acceptable buy price is about $67.32, which is really very close to the current share price for this stock.

So in reality, even with the recent runup in the share price over the last couple of years, the stock still seems to be trading at a somewhat interesting valuation, and it still has a nice starting dividend yield, sitting at about 6.27%.

But this is certainly not a buy and hold or a set it and forget it stock. It's a company where you have to closely keep up with those quarterly earnings reports. You need to understand what's going on with their volumes, what's going on with their pricing power and their margins and definitely pay close attention to their capital allocation.

But this was a contrarian play just a few years ago when I invested into it. And it's worked out quite well for me so far. The dividend yield on cost, like I pointed out, is nearly 10%, especially after this recent dividend hike. And I'm up over 82% on this position.

So, personally, I'm not adding more shares at current prices. I'd love to see it pull back even more without the fundamentals changing because I would consider that a much better opportunity, but it's not necessarily a bad opportunity at current prices. I think it's fairly reasonably priced.