Can Altria Group Continue Current Asset Appreciation Trend? (MO)

After dropping more than 40% since mid-2017 to reach its four-year low in January 2019, the Altria Group, Inc (NYSE:MO) saw its share price recover nearly half of those losses in the last 60 days.

While significant on its own, this 40% pullback is still not as bad as the 83% share price drop in the aftermath of the 2008 financial crisis. However, the share price advanced more than five-fold between its after-crisis low at the end of 2018 and the current five-year high in mid-2017. Therefore, the share price might still have room on the upside, especially considering its investments into new market segments, such as the fast-expanding global cannabinoid market.

The 50-day moving average (MA) is still below the 200-day MA — where it spends most of the past 12 months. However, the 50-day MA has been rising steadily since late February 2019 driven by the current share price uptrend. Additionally, the share price broke above the 200-day MA on March 14, 2019, for the first time since falling below the 200-day average in early November 2018.

Financial Results

On January 31, 2019, the Altria Group announced that net revenues of $6.1 billion for the fourth quarter were just 0.2% higher than in the same period last year. However, reduced tax rates and fewer outstanding shares resulted in a 4.4% increase of the adjusted earnings per share (EPS) to $0.95, which was in line with Wall Street analysts’ expectations. In addition to meeting EPS expectations in the fourth quarter, Altria beat analysts’ earnings expectations in the first three quarters of 2018.

Total revenues of $25.36 billion for full-year 2018 were 0.8% lower than prior year. However, a lower tax rate and a share repurchasing program managed to increase the total EPS for the year 17.7% to $3.99 for full-year 2018. Altria’s management expects a 4% to 7% EPS growth for full-year 2019, from the current $3.99 figure to between $4.15 to $4.27 in 2019.

Altria Group, Inc (NYSE:MO)

Headquartered in Richmond, Virginia, and founded in 1919, Altria Group, Inc. manufactures and sells tobacco globally and wine in the United States. The company offers cigarette products primarily through Philip Morris USA — the maker and marketer of Marlboro cigarettes. Additionally, Altria also owns John Middleton, the manufacturer of Black & Mild cigars, and Nat Sherman — manufacturer of super-premium cigarette and cigar products. Furthermore, Altria has ownership of the U.S. Smokeless Tobacco Company, which is the maker of moist smokeless tobacco products under multiple brands, including Copenhagen and Skoal. The Altria Group also has a 35% ownership stake in JUUL Labs, Inc. — one of the nation’s leading producers of e-cigarettes and e-vapor products.

Altria also owns the Ste. Michelle Wine Estates and has a substantial equity investment in the world’s largest brewing company, Anheuser-Busch InBev. In addition to producing and marketing its own wines under multiple labels, Altria also imports and markets in the United States, Antinori, Torres and Villa Maria Estate wines, as well as Champagne Nicolas Feuillatte. In its most recent move to expand and diversify its product portfolio, the Altria Group invested $1.8 billion to acquire a 45% stake in the Cronos Group, which is one of the leading companies in the fast-expanding global cannabinoid market.

Dividends

In addition to long-term capital gains, the Altria Group also has been a steady source of dividend income for investors. Except from 2017 to 2009 when the annual dividend fell, the company has boosted its total annual dividend amount every other year in the past two decades. After resuming dividend hikes in 2010, Altria enhanced its total annual dividend payout more than 140%, which corresponds to an average annual growth rate of 9.4%.

The firm currently pays a quarterly dividend distribution of $0.80, which is 14% higher than the $0.70 payout from the same period. This current payout corresponds to a $3.20 annualized payout and a 5.6% dividend yield, which is nearly 40% higher than the company’s 4% yield average over the past five years.

Share Price

Entering the trailing 12 months on the general downtrend that started in mid-2017, the share price continued to decline another 12% before reversing direction and heading higher. After the direction reversal, the share price managed to gain more than 20% before reaching its all-time high of $65.87 on October 30, 2018.

After reversing direction at the peak, the share price plunged along with the overall market and share prices of many other equities more than 25% by December 24, 2019. However, unlike the overall market and many other stocks that bottomed out on Christmas Eve, Altria’s share price did not reach its 52-week low of $43.33 until January 24, 2019, for a total loss of more than 34% below its October peak.

However, the share price reversed trend after bottoming out in late January and has been rising steadily since then to close at the end of trading on March 18, 2019, at $57.30. While still 13% below the October peak and more than 8% lower than it was one year earlier, the current closing price is more than 32% above the 52-week low from January, as well as 54% higher than it was five years ago.

While the share price is 8% short of its level from last March, the dividend income that yields 5% managed to offset more than half of that deficit for a total loss on shareholders’ investment of only 3% over the past 12 months. However, a robust asset appreciation assisted in delivering a 5% total return over the past three years. Furthermore, shareholders nearly doubled their investment over the past five years with a total return of more than 90%.

Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.