Altria Group (NYSE: MO) is a tobacco company that manufactures and sells cigarettes, smokeless products, and wine in the United States.
Its most popular cigarette brand is Marlboro. It sells cigars principally under the Black & Mild brand, and moist smokeless tobacco products under the Copenhagen, Skoal, Red Seal, and Husky brands.
The company also produces and sells varietal and blended table wines and sparkling wines under the Chateau Ste. Michelle and 14 Hands labels. Altria was founded in 1822 and is headquartered in Richmond, Virginia.
I am neutral on MO stock. The attractive MO stock dividend yield should be considered, along with weak sales growth and negative shareholder equity in Q3 2021.
Altria Group Business News
In late summer 2021, Altria Group increased its regular quarterly dividend by 4.7% to $0.90 per share versus the previous rate of $0.86 per share.
The company has a long-term objective of a dividend payout ratio target of approximately 80% of its adjusted diluted earnings per share. Investors looking for top dividend stocks should know that this latest dividend increase was the 56th dividend increase in the past 52 years, a remarkable achievement.
The firm continues to be committed to reducing its environmental impact and addressing climate change.
Taking this commitment to protect the environment even further, the firm announced “its first standalone Task Force on Climate-related Financial Disclosures (TCFD) report.”
Q3 2021 Earnings
Missing both GAAP EPS and revenue is not good news for any company.
Altria Group in Q3 2021 reported GAAP EPS of -$1.48 (miss by $2.74) and revenue of $5.53 billion, a miss by $196.87 million.
Altria reported revenue of $6.8 billion, compared to $7.1 billion in 2020, operating income of $2.95 billion compared to $3.16 billion, and diluted earnings per share of ($1.48) compared to ($0.51) in Q3 2020.
Fundamental View
In Q3 2021, Altria Group reported negative shareholder equity, a figure of ($1.3 billion). This, combined with a D/E ratio of 9.85 for FY 2020, is a red flag.
Altria’s operating margin is expanding, a good sign, but the payout ratio of 78% is considered too high and currently, the dividend payments are not well covered by earnings. On the other hand, a strong free cash flow trend can support debt and interest coverage.
The losses from equity investments of almost $6 billion in Q3 are also concerning.
Equity investments include Anheuser-Busch InBev SA/NV, and Cronos Group, a Canadian cannabinoid company. A lower operating income with lower revenue and lower cost of sales in Q3 2021 seems to be another major concern.
It is positive news that Altria raised the lower end of full-year 2021 guidance, expecting to deliver adjusted diluted EPS in a range of $4.58 to $4.62 compared to a $4.36 base in 2020. Another positive is the expansion of the share repurchase program from $2 billion to $3.5 billion.
The firm has a vision to move to a smoke-free future that is bold and interesting. However long-term growth for revenue, net income, and EPS is weak.
The 10-year average growth for revenue, net income, and EPS is 2.12%, 1.35%, and 2.53%, respectively. The dividend yield growth may soon reach the firm’s long-term goal. Investors then may not be too happy with a stable, but no longer growing, dividend.
Wall Street’s Take
Turning to Wall Street, Altria Group has a Strong Buy consensus based on six Buys and two Holds. The average Altria Group price target of $52.63 represents 11.1% upside potential.
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Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.
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