Last update on 2024-06-27

Altria Group (MO) - Dividend Analysis (Final Score: 6/8)

In-depth analysis of Altria Group (MO), evaluating dividend policy performance using an 8-criteria system. Final score: 6/8.

Short Analysis - Dividend Score: 6

We're running Altria Group (MO) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Altria Group has a high dividend yield (9.5191%) compared to the industry average, making it attractive for income-focused investors. However, their average payout ratio (185%) significantly exceeds the ideal threshold (65%), indicating potential cash flow issues. Dividend growth over the last 20 years shows variability, with no clear positive trend. Earnings coverage of dividends showed stability, although with some low points, and cash flow coverage demonstrated fluctuations, bottoming out at times of financial uncertainty. Altria has consistently paid dividends for 25 years, but the stock repurchases add value by reducing outstanding shares. Overall, there are signs of strong dividend commitment but also some red flags regarding sustainability.

Insights for Value Investors Seeking Stable Income

Given the high dividend yield and consistent dividends over 25 years, Altria Group can be an appealing choice for dividend-focused investors. However, the consistently high payout ratios and fluctuating cash flow coverage suggest caution is warranted. It may be wise to investigate further into what drives these fluctuations and whether Altria's financial health can sustain future dividend payouts.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is an important metric for income-focused investors because it indicates the return on their investment from dividends alone.

Altria Group (MO) boasts a dividend yield of 9.5191%, which is significantly higher than the industry average of 4.61%. Historically, Altria's dividend yield has fluctuated but has generally remained attractive, especially to income investors. For instance, in 2008, the dividend yield skyrocketed due to a drastic drop in stock price during the financial crisis, reaching an abnormal high of 350.1992%. Since then, it stabilized, consistently outpacing the industry average. In the past five years, the dividend yield has been particularly strong, reflecting both the company's commitment to returning capital to shareholders and potential caution due to stock price fluctuations. The latest dividend yield of 9.5191% reflects an impressive trend beneficial for dividend-seeking investors. However, such high yields can also raise questions about the sustainability and potential risks associated with the company's overall financial health.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate is a measure of how much a company's dividend payments have increased over time. For dividend-focused investors, a higher growth rate is preferable as it indicates the potential for increasing income from dividends in the future. Evaluating this rate over a long period, such as 20 years, provides a better understanding of the company's ability to sustain and grow its dividends through various market conditions.

The Dividend Ratio for Altria Group (MO) from 2003 to 2023 shows significant variability, with occasional negative and extreme values, particularly notable in 2007 (651.7771) and 2008 (111.3065). These outliers significantly distort the overall picture. However, calculating the average, we find it to be around 38.54%. Most recently, the ratios are approximately within the 3.5-4.5% range. While the starting and ending years' result is insufficient for directly computing the growth rate without actual payout per share data, there is no clear consistency in positive growth. This implies a mixed trend overall, with caution advised for dividend stability.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average Payout Ratio lower than 65% in the last 20 years

Altria Group's average payout ratio over the past 20 years stands at approximately 185%, significantly exceeding the target threshold of 65%. This trend is unfavorable when evaluated against this criterion. From 2003 to the present, Altria frequently posted ratios well beyond the acceptable range. For instance, in 2007, the ratio surged to 540.2%, skyrocketing further to 2234.7% in 2008. The sizable losses in select years (e.g., 2016 and 2019) skew the averages, distorting the sustainability signal typically desired by conservative investors. Even in relatively 'better' recent years, the payout ratios often remain notably high (2021: 259.3%, 2022: 114%), sometimes appearing as a result of attempting to appease shareholders despite fiscal challenges. While occasional high payouts are usually manageable, consistently high percentages hint at potential cash flow issues and raise alarms about dividend sustainability.

Dividends Well Covered by Earnings?

Earnings per share (EPS) covering dividends per share (DPS) is important as it ensures the company generates enough profit to sustain dividend payments. This ratio should ideally be above 1.

Over the years, the coverage of dividends by earnings for Altria Group (MO) exhibits significant variability. Though historically, between 2003 and 2017, the coverage ratio fluctuated around sustainable levels, mid to late years display alarming low points with negative earnings in 2019, drastically affecting the ratios. Negative values in 2019 and low coverage below 1 in various years (e.g., 2009, 2010) indicate periods where dividends might have been paid via reserves or borrowings rather than earnings. However, the coverage stabilizes after initial turmoil with peaks in recent values indicating possible prudent financial management or rebounds in profitability. While there's no consistent upward trend, averagely rational coverage from 2020 onwards hints towards recovery.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow

Altria (MO) has shown fluctuations in covering dividends with its free cash flow over the past two decades. Strong coverage was seen in certain years, with ratios above 1.0 indicating robust free cash flow that exceeded dividend payouts, such as in 2006 (0.612), 2010 (1.138), 2013 (0.851) and 2022 (0.819). However, worrying trends are also identified such as in 2008 (0.303) and 2009 (0.849), where coverage drastically decreased, likely during financial uncertainty. The more recent data from 2018 onward displays a consistent effort in maintaining coverage above 0.75, trending back towards better sustainability. Continuous under or over 1.0 coverage highlights periods of better financial management or potential cash flow risks impacting dividend stability. In the long run, maintaining higher and stable ratios helps assure investors of dividend reliability.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends over the past 20 years signifies the company's consistent ability to generate cash flow and its commitment to returning value to shareholders. It boosts investor confidence.

Evaluating the provided data on Altria Group's (MO) dividends over the past two decades, there was significant variability in 2007 ($24.959) and 2008 ($52.74). The dividends normalized thereafter, hovering between $1-$3.84 per share, and showcased a growth trend. No year saw a drop of more than 20%. Given this consistent growth post-2009, the stability criterion is well met, ensuring income-seeking investors of reliable dividends.

Dividends Paid for Over 25 Years?

Consistency in paying dividends for over 25 years indicates a stable and reliable company. It can be an attractive feature for income-focused investors.

Altria Group (MO) has consistently paid dividends for 25 years from 1998 to 2023, without any year missing a payment. This not only shows the company's commitment to reward shareholders but also indicates strong financial health. Notably, the dividend per share has generally increased over the years, rising from $1.68 in 1998 to $3.84 in 2023, despite some irregularities and extraordinary increases in 2007 and 2008 owing to Altria's spin-off of Philip Morris International. This trend is highly positive for long-term investors looking for a stable and growing income source.

Reliable Stock Repurchases Over the Past 20 Years?

Explain why reliable stock repurchases over an extended period, such as 20 years, are important to consider for a company.

Reliable stock repurchases over a long period like 20 years indicate the company's commitment to returning value to shareholders. When a company buys back its shares, it indicates that it believes its stock is undervalued, a sign of strong internal confidence. For an investor focused on dividends, this is a positive trend as it reduces the number of outstanding shares, boosting earnings per share, and potentially increasing dividend payouts.