Why Altria (MO) is a Top Dividend Stock
Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Altria in Focus
Altria (MO) is headquartered in Richmond, and is in the Consumer Staples sector. The stock has seen a price change of -14.49% since the start of the year. The owner of Philip Morris USA, the nation's largest cigarette maker is currently shelling out a dividend of $0.8 per share, with a dividend yield of 5.24%. This compares to the Tobacco industry's yield of 4.04% and the S&P 500's yield of 1.77%.
In terms of dividend growth, the company's current annualized dividend of $3.20 is up 26% from last year. Over the last 5 years, Altria has increased its dividend 5 times on a year-over-year basis for an average annual increase of 8.66%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Right now, Altria's payout ratio is 74%, which means it paid out 74% of its trailing 12-month EPS as dividend.
MO is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2018 is $4 per share, representing a year-over-year earnings growth rate of 18.34%.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that MO is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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