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Altria Group: The King Of Dividend Kings Faces Long-Term Resistance with a 9.52% Yield

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Introduction

2023 has presented challenges for dividend stocks, driven by the tightening cycle of the Federal Reserve and rising interest rates. Despite this, it is an opportune time for investors to allocate capital towards risk-free investments, with the 2-year treasury yield exceeding 5% and the 10-year yield at 4.68%. Dividend stocks, including Altria Group (NYSE:MO), have faced significant declines in their share prices. However, Altria Group, the king of the Dividend Kings, offers an attractive yield of over 9%. Despite facing challenges such as increasing regulations and a more health-conscious consumer base, this could be an excellent time for investors to start accumulating shares of Altria, given the potential long-term rewards.

Money on the edge

Altria’s Strong Dividend Track Record

Altria Group has established itself as a reliable dividend payer, with a remarkable track record of 58 dividend increases over the past 54 years. Currently, Altria holds the distinction of being the highest-yielding Dividend King, offering a robust 9.52% yield. The company’s dividend has grown at a compound annual growth rate (CAGR) of 5.85% over the past 5 years. Altria’s commitment to dividend growth is evident in its recent announcement of a 4.3% increase in its quarterly dividend, marking its 54th consecutive annual dividend increase. With a projected annual dividend growth rate of 34.27% through the rest of the decade, Altria has significant potential for dividend income growth.

Altria Group

Altria’s Impressive Financials

Altria’s financial performance is robust. In the trailing twelve months (TTM), the company generated $20.58 billion in revenue, with a gross profit margin of 69.44%. Its net income margin stands at 33.13%, generating $6.82 billion in net income. Altria’s free cash flow (FCF) reached $8.58 billion, resulting in an FCF yield of 41.68%. The company maintains a relatively low level of debt, with a net debt to EBITDA ratio of 2.15x. Altria’s strong financial position provides a solid foundation for its dividend payments and future growth initiatives.

Altria

Valuation and Growth Prospects

Altria Group is currently trading at an attractive valuation compared to its peers. Its forward earnings per share (EPS) ratios for 2023 through 2025 are among the lowest in the group, standing at 8.25x, 7.93x, and 7.61x respectively. The stock also trades at a low 8.51x FCF multiple, indicating a favorable valuation based on its earnings and cash flow generation. Despite some potential concerns, Altria is expected to achieve an 8.42% EPS growth rate through 2025. These factors, coupled with its strong dividend track record, make Altria an appealing investment opportunity.

Dividend Yield

Altria Group’s Long-Term Resistance Level

Moving forward, Altria Group faces a crucial long-term resistance level after crossing the $40 mark in 2014. Despite briefly touching the $40 level in 2019 and 2022, shares have remained below this level. Currently, Altria is testing this resistance level once again after experiencing a consolidation phase. The outcome at this level will significantly impact the stock’s future performance. If the $40 level holds, shares could rebound to the mid $40s. Conversely, a break below $40 could create a new resistance level in the $30s, which would not bode well for Altria’s stock price.

Altria

3 Potential Catalysts for Altria Group

Altria Group holds three external catalysts that could drive its future growth. Firstly, the decline of environmental, social, and governance (ESG) investing may work in Altria’s favor, as it operates in an industry that often conflicts with ESG principles. Second, Altria’s significant investment in Cronos Group (CRON), which possesses a stake in PharmaCann, could prove lucrative if cannabis legislation progresses. Finally, as the rate environment adjusts to a higher for longer outlook, investors may turn to dividend stocks like Altria for attractive yields. These catalysts could serve as positive drivers for Altria’s performance.

2023 Presentation

Risks and Conclusion

Investing in Altria Group does not come without risks. The company is subject to the influence of regulators and public sentiment, which can impact its operations and revenue streams. Heightened health consciousness and stricter regulations pose significant challenges to Altria’s tobacco business. However, the company’s profitability, low debt levels, share buybacks, and commitment to dividend growth mitigate some of these risks. As the rate environment potentially eases and investors seek higher yields, Altria’s attractive dividend and valuation should become increasingly appealing. Considering these factors, Altria presents a strong investment opportunity for income-focused investors who are willing to withstand possible short-term volatility.

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