Altria Group - A Dividend King. Also a Strong Investment?
The Altria Group is the holding company for Philip Morris USA, and a major investor JUUL, the e-vapor brand and Cronos an intellectual property firm involved in the development and handling of research of cannabis. Philip Morris is most well known for its Marlboro cigarettes, which have a 40% market share in the US, additionally the company also owns some elite cigar and non-smokeable nicotine products sold globally. The Altria group is a "Dividend King", meaning that it has consistently paid and increased its dividend for more than 50 years, making it the one of the few companies in the world to have this record. At the moment, the Altria group yields a dividend of around 8.5% which is staggeringly high.
After reading the annual report of the company, it seems as though the management has been very clear with the pertaining costs for this year and potential headwinds in the following years. This shows that the management has shown decent honesty in their outlook for the company. Furthermore, the employee reviews prove that the company provides great benefits and development, which shows a strong desire for talented employees.
While the asset values have dropped around 10% due to the sudden fall in both the value of Cronos (TSE:CRON) and JUUL as regulatory and industry headwinds have affected the value of both of these assets. Furthermore, in order to pay for the $8 billion infusion into JUUL laboratories, and the investments in ABinBev and Cronos, Altria has raised its long-term debt by around $16 billion in both USD and Euros.
Overall, we can see that Altria group will be paying a maximum of $2.2 billion in interest around 20% of the company's operating income.
The income statement clearly shows the effect of the JUUL laboratories investment on the company dragging down the earnings of the firm to below zero for this year. The revenues earned from all products have remained somewhat stagnant over the past three years, however the company has been successful in reducing operating costs, consistently bringing up operating profit. However, the payments conducted to acquire the 35% stake in JUUL laboratories, and the loss bared in the Cronos investment, cost the company over $ 10 billion this year. Although the earnings seem effectively loss-making this year, the company will most likely have a steady stream of revenues in the future with a hold on both the most desired cigarette brand and e-vapor product in the world.
Altria groups holy grail is currently its 35% stake in the e-vape giant JUUL. The company spent $12.8 billion on the investment, valuating this company at over $35 billion. However, JUUL's valuation has dropped significantly after serious criticism against teenage smoking, and lawsuits against the dangers of e-cigarettes. This may have affected Altria's asset quality; however, I think adding the largest player in this booming industry into Altria's portfolio of products will allow the company to open up even more revenue streams in the future.
Although, Altria does seem to be having troubles with paying of their acquisition remnants and now piling on a fresh set of long-term debts, I believe that they will see the benefits of these investments in the long-term and so will their stock-holders. Their current stream of revenue, I believe will continue to remain strong as they still sell Marlboro cigarettes and non smoke-able products. With its 8.5% dividend yield, I believe this company can be a great stock to hold for the long run.