Altria (MO) announced their 2018 dividend increase of 6.06% from $0.66 to $0.70. This marks 52 dividend hikes in the last 49 years for the company. The increase was inline with my expectation of a $0.04 increase. The current dividend yield on MO sits at 4.28% based on the closing price of $65.43.  What is surprising on the increase, is the timing.  Normally Q4 is the timing of the increase, however this year Q2is when the increase will take effect.  The tax reform was not cited for the early increase.

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 8.15%. If you look at the quarterly dividend back in 2008 of $0.32 and fast forward to present day’s $0.70, you quickly realize your dividend income has more than doubled inside of a 10 year span (118%), not bad for a boring company tobacco company.

Some stats on MO:

Market Cap: $124.4 Billion

Profit Margin: 52.44%

Payout Ratio: 71%

Total Debt: $13.89 Billion

Total Cash:$1.25 Billion

Operating Cash Flow: $4.92 Billion

You’ll notice that high payout ratio of 71%. That’s actually below the companies goal which targets an 80% payout ratio. Normally that high a payout 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.

 

MO is a stock that I will probably never sell and own for the rest of my life and is currently my single largest holding. The capital appreciation is nice and steady, holds up during recessions, and that dividend and dividend growth is sexy. 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 $0.04 increase announced August 2018. For those keeping score at home, this makes 20 of my holdings announcing increases for the year.

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 3/8/2018 sits at $65.43, meaning your $10,000 investment would currently be worth $26,172.  This translates to a return of 161%.

Looking at dividends during the time frame, you would have $7388 in dividends (through Q1 2018), which equates to 73.88% of your initial $10,000 investment.  When we factor in dividends into our return (not reinvested), we get a total return of 235.60%.  We see again the importance of dividends on the total return of a stock, here making a difference of 74.6%.  The dividends account for almost 1/3 of total returns or 31.66%.

If we look at the concept of yield on cost, the current annual dividend rate of $2.80 divided by our initial purchase price of $24.97, we get a yield on cost of 11.21%.  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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