Altria (MO) announced their second 2018 dividend increase of 14.28% from $0.70 to $0.80. This marks 53 dividend hikes in the last 49 years for the company. The second increase blows past my expectation of a $0.04 increase for the year (remember the first increase was $0.04). The current dividend yield on MO sits at 5.41% based on the closing price of $59.11. This increase follows the normal predictable cycle of dividend increases from MO. The tax reform was not cited for the healthy increases, but you can bet it was a definite underlying factor.
Let’s take a graphical look at the dividend history going back to 2008 (I didn’t feel like pulling prior data do to spin offs of Kraft and Philip Morris prior to 2008):
The average dividend increase from MO going back to 2008 has been 9.67% per year. If you look at the quarterly dividend back in 2008 of $0.32 and fast forward to present day’s $0.80, you quickly realize your dividend income has more than doubled inside of a 10 year span (to the tune of 150%), not bad for a boring company tobacco company.
Some stats on MO:
Market Cap: $111.43 Billion
Profit Margin: 54.69%
Payout Ratio: 49.01%
Total Debt: $13.9 Billion
Total Cash:$1.43 Billion
Operating Cash Flow: $6.83 Billion
You’ll notice that payout ratio of 49% is actually below the companies goal which targets an 80% payout ratio. At this level, the company has plenty of room to continue future dividend increases. Normally a high a payout of 80% might be a concern, but since the industry is prone to lawsuits, rather than keep the cash, kick it out to shareholders.
MO vs S&P500
Now, lets take a look at MO vs S&P500 for the past decade. You can easily see it’s not even close in terms of performance. This doesn’t even factor in dividend reinvestments, just pure capital appreciation. Also, think about this…2018 has not been a good year for this stock. It’s on sale.
MO is a stock that I will probably never sell and own for the rest of my life and is currently my second largest holding. The capital appreciation is nice and steady, holds up during recessions, and that dividend and dividend growth is sexy AF. It is one of my 5 stocks for a basic portfolio for beginners. I expect more of the same next year regarding the dividend, approximately a $0.06 increase announced August 2019.
The Value of $10,000 Invested Long Term
The closing price on 1/2/2008 (first trading day) was $24.97 (split adjusted). If you invested $10,000 at that price, you would have purchased 400 whole shares (rounded down). The current closing price on 9/4/2018 sits at $59.11, meaning your $10,000 investment would currently be worth $23,644. This translates to a return of 136%.
Looking at dividends during the time frame, you would have collected $8,268 in dividends (including Q4 2018), which equates to 82.68% of your initial $10,000 investment. When we factor in dividends into our return (not reinvested), we get a total return of 219.12%. We see again the importance of dividends on the total return of a stock, here making a difference of 83.12%. The dividends account for over 1/3 of total returns or 38%.
If we look at the concept of yield on cost, the current annual dividend rate of $2.86 divided by our initial purchase price of $24.97, we get a yield on cost of 11.45%. This is basically the dividend yield you are getting based on your initial purchase price in 2018. If MO were to be flat on the year, you are basically collecting an 11% return on your initial $10,000 investment. It shows the power of dividend growth investing over time, combined with a buy and hold strategy.
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