Altria Stock Analysis (Is the 9% Dividend Worth Investing Into?)

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In this video we will be analyzing and doing a deep dive together on Altria (ticker symbol MO).

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How goes it everyone welcome back to Dividend Compounders with cheese in today’s video let’s go ahead and talk about Altria one of the biggest tobacco companies in the world and they are currently trading for about $41 let’s just go ahead and say $40 for Simplicity

Sakes which is near their 52 we low and their PE ratio is sitting at 8.4 so I’m trying to figure out are they undervalued and is it a good time to jump in right now in this video we are going to look at the intangibles the finances and run some valuation models

To determine if it’s a delicious or a disgusting dividend stock I don’t like the industry or the effects they have on the population on a personal level however when it comes to investing if you want the best returns it’s best to turn off your personal feelings don’t

Hold on to a falling stock because you’re in love with the company and don’t avoid a winning company because you hate their business there are some Android loving folks who will intentionally avoid investing in apple due to personal feelings people like that exists so even though I don’t like

The tobacco and nicotine industry I can’t lie it is a lucrative cash flow business and financially their balance sheet looks Rock Solid the thing that holds them back is I’m sure a lot of investors share the same sentiment as me not investing in a sin stock a company that gives people Health consequences

Let’s see if my attitude towards them will change by the end of the video so this is a YouTube channel that is focused on dividend Compounders so let’s go ahead and check out their dividend over the years so they have been publicly trading for a long time now and

They have a history of paying their dividend year after year and increasing it year after year this is a wonderful thing to see however let’s go ahead and take a closer look at their dividend to figure out if it’s healthy because the dividend yield is almost

99.5% so the yield is a little scary because it’s high but it checks out cuz the payout race ratio is less than 80% so it seems to be sustainable especially for a mature company the dividend has grown by 4% year-over-year things are looking okay and they have the history

To back it up and I’ll be honest with you the consistency of their dividend is what drew me in and what made me curious and want to investigate Altria because I’ve never really been interested in the company before but as a history nerd once you look at their past you can’t

Deny that it’s a dividend compounder okay so we know that the dividend is Juicy and it seems to be sustainable for now but how has Altria performed over the years so for the past 10 years Altria has returned 121% with a 7.44% year-over-year ker this is pretty

Respectable I like what I’m seeing so even if the stock price stays relatively flat at around $40 with that 9% dividend yield I am attracted to them next let’s go ahead and look at their historical trading multiple to see if they are in line with their pass so right after the

Great Recession it looks like alria traded at a low single digit and as we progress through the bull market it looks like they finally hit a double digit trading multiple but during the pandemic it does look like alria traded at a more normal PE ratio so historically is it safe to say that

Their trading multiple has been back and forth between single and double digits right now their PE ratio is roughly 8.5 and that’s a really low value however it’s almost fair for a business as mature as Altria or is it on a side note tobacco has been used across all

Generations and societies and it’s strange to think even after all these years tobacco is still a cash crop Because Of The Addictive nature of nicotine so even though Altria is a mature business with little growth left their product still has humans and a headlock next we’re going to go ahead

And investigate and research altria’s business model and figure out if they have an economic move but before we do that I wanted to tell you something a little about myself one of my first jobs that taught me the value of a dollar was actually in a not so safe part of town I

Used to work in a liquor store as a cashier and I can verify people were buying maror parliaments and Virginia Slims hot off the rack that was my first lesson as to how popular tobacco was with people and if you think that cigarettes are of the past they’re

Really not and almost every Blue Collar working field such as like warehouses truck drivers Tradesmen and even in urban cities nearly every working adult smokes it’s just how it is I don’t make up the rules and even in Europe Asia Africa and all over the world they’re

Rich and the poor are smoking so getting addicted to using these products does not discriminate so I grew up on the east coast in the US and I can say that smoking cigarettes in middle school was the thing the rebellious cool guy thing

To to do was smoke a Black and Mild or a pack of Mars and I remember having this irrational fear of smoking because of all of the Dare presentations and guest speakers who would come and talk to us about their experience with smoking and sometimes they would have a hole in

Their throat and they would tell us about the consequences of smoking and I think that traumatized my brain to the point where I did not want to do anything related to smoking so whenever my classmates were smoking I always held my breath when I walked past them and

When you fast forward on this timeline when I became an army officer and at the time I was an infantry officer and it was all 100% male this was before the integration of females nearly all of my men used dip or chew in the field and my

Ncos used to carry only an empty bottle to meetings so they could spit their dip in it and I’ll share some more stories as we dive deeper and with that said let’s go ahead and take a look at altria’s different brands and products our family of companies include Philip

MO Morris USA us smokeless tobacco company John Middleton Helix Innovations and enjoy let’s go ahead and take a look at each one so when we look at Philip Morris this is their cigarettes arm of the business and according to altria’s research Marboro has 42.5% of the cigarette market share that

Is insane and when you look at the retail share almost 50% that means every one out of two people that are smoking a cigarette in the US most likely has a maror in their mouth and when we take a look at their us smokeless tobacco arm of the business their Copenhagen and

Skull are the big major players and it seems to be the most popular and when you add up all of their oral tobacco business segments the market share is 46.4% every one out of two people that use dip or chew most likely going to be using an Altria product so not only does

Altria have cigarettes and chew and dip under their umbrella they also have a cigar company called John Middleton and their most popular product is Black and Mild which are those skinny long cigars that Everyone likes to smoke and what is interesting about the black and mile cigars is that it comes with a

Mouthpiece like if you ever played the trumpet or tuba before but this next company is really important because this is their future and where they’re going towards enjoy is their ecigarettes arm of the business and this is actually really popular with people and then of course Helix Innovations which is

Responsible for on their most popular nicotine pouch product let me show you what it looks like isn’t it funny whenever I go to one of these tobacco websites they have to have this type of banner up at the top to show people how hazardous and harmful the product is and

Even on the product itself I would say 40% of the real estate of the packaging is dedicated to telling people how dangerous it is so I guess this is like the krig type of tobacco product comes in little pods or pouches but it seems to be popular with the population and

I’ll talk more about that here in a little bit so altria’s business model is pretty straightforward they distribute all of their products to retailers and then the retailers sell it to the customers so when we think about their business model does alria have a business Monopoly well I wouldn’t say

That they have a monopoly but they basically do I guess you could say it’s a duopoly their only real big competitor is the British American tobacco company and they have some big brands in their portfolio like Newport sigs camel sigs and Paul Maul even though there’s a lot

Of different brands and products in the tobacco business it’s a pretty big industry as you can see it the US tobacco market is going to grow year over-ear with no slowing down in sight so even when Altria is forced to advertise how harmful their products are upfront every year millions of new

Customers are introduced into the tobacco ecosystem it’s a really sad thing to see however I learned in life it’s not my job or duty to judge what people choose to poison their bodies with some people choose to binge eat over ly processed food other people listen to conspiracy theories all day to

The point where they become deranged and whatnot but at the end of the day I truly do feel sorry for the people who become addicted to any of this stuff and at one point in my life I used to have an addiction to video gaming when I was

Going through a pretty bad chapter in my life and it’s such a terrible excuse to say but it was a way to numb my mind from the realities of life like I used to play video games for like 12 to 14 hours a day immediately after after work sometimes even skipping sleep but

Anyways fast forward to today even though smoking traditional cigarettes is losing steam the customers are shifting from one product to another tobacco product vaping nicotine pouches and dip like skull in Copenhagen so I went to a military academy for my undergraduate degree and let me tell you nearly every

Single one of my classmates were chronic consumers of chewing tobacco or dip it’s like one of those military culture things where everyone ends up dipping by by the time they turned 19 or 20 some people even had a Christmas tree made entirely of dip tin cans and if you’re

Wondering what a dip can looks like it’s like that it’s colorful and it comes in different flavors you could have like green red purple you name it unfortunately or I guess fortunately I never got to experience dip but I did smoke a big old cigar after the

Completion of one of our training events my roommate also smoked a cigar for the first time that night and he ended up vomiting all night long for me the cigar gave me the worst headache ever it’s safe to say that we definitely did not smoke the cigars the proper way we were

Young dumb immature and just full of testosterone but going back to the facts and figures and intangibles for Altria basically here from statista I just wanted to show worldwide Mar’s market share is just staggering marbor L&M Copenhagen Chesterfield those are all Altria and this is the tobacco Atlas and

I just wanted to show you how the smoking prevalence is declining but the total customer base is growing as the world population is increasing and from this graph right here it’s depicting the percentage of daily smokers so darker the color the more density of people that are smoking when we look at Europe

Like Russia 28% and Spain 26% compare that to the US roughly 14% Indonesia sitting at 31% Egypt at 21.7% South Africa at 17.2% so HDI stands for human development index so I guess that’s a metric to determine how developed the country is and it looks like 53% of

Female daily smokers live in very high HDI countries so that probably explains why in Europe almost every single one of these countries are pretty much above 20% so this is a very interesting set of data points the distribution of smokers it appears the more developed your

Country or city is the more likely you are to smoke this one is very interesting from the World Health Organization the changes in consumption so even though the consumption per capita has declined in all regions of the world the number of smokers has significantly increased in four out of

The six regions so it looks like smoking is increasing in Africa Eastern mediterian with a 99% change in Southeast Asia and the Western Pacific which are decreasing North America and South America and then Europe honestly from doing research about Altria I’m learning way too much about the tobacco

Industry which I did not want to know about but it’s healthy to understand the prospects in future and forecast of alria so this right here is the countries with the most smokers and it looks like the winner is China and did you know that India is now the world’s

Biggest populated country and this is a fun fact that blew my mind did you know that Indonesia is is the fourth biggest country in the world in terms of population yeah I didn’t know that either but anyways USA which by the way looking at this graph the lighter shade

Of teal is males and the darker shade of green is females and it looks like out of all of these countries in the USA the distribution of male to female ratios seems to be the most balanced with 25 in the males and 20.1 for the females and I

Guess this is a million so 20.1 million females so I keep getting this pay wall from statista so I wanted to refresh so you can take a look at it it’s the number of smokers worldwide from 2014 all the way to 2029 ready as you can see it’s pretty

Stagnant but it is growing and I wanted to show that because even though the smoking age has increased in the US from 18 to 21 and there’s barriers to purchase are becoming more abundant as the health implications are becoming more widely known I know in places like

Mexico Canada and other parts of the world an 18-year-old can still buy a pack of cigarettes when I was stationed in Germany something that blew my mind was that there were cigarette vending machines almost everywhere and I know this is a very anecdotal experience but I remember a lot of the customers for

These cigarette vending machines you know that were parked right outside of the train station or bus stop it showed me how relaxed the rules are for smoking in other parts of the world especially drinking and something to keep in mind is that Altria is trying to transition from purely smoking cigarettes into

Smokeless tobacco moving Beyond smoking a new Direction and I think that explains why they’re investing so heavily into what the consumers are gravitating towards which is vaping dip and other smokeless nicotine products at least the business leadership understand the name of the game and are aware of our society’s

Views towards cigarettes and they’re sensitive to the changing consumer preferences hopefully this isn’t just lip service about how they’re pivoting to a smokeless future and they’re putting their money with their Malou is because they just acquired enjoy on June 2023 so although their organic Revenue growth is slowing down from their

Traditional cigarettes business they’re making Acquisitions to continue to Cash train so I think alria is actually a smart company a company that I still don’t like on a personal level so I want to try and answer that question again do they have an economic moat or high barrier to entry absolutely so alongside

Philip Morris International which is another really big player in the tobacco industry and as a matter of fact Philip Morris International and alria used to be the same company until they split up because of dividend payment arguments and business priorities right before the Great Recession can you believe that in

The US alria is King internationally Philip Morris International is King so whenever there is competition or a new player in the game alria just buys them out and absorbs them into their portfolio with all of the regulation pumped out from Congress it’s it’s designed in such a way where no new

Cigarette players can join the fight honestly think about it right almost all of these cigarette brands have been around for decades and they can’t even spend money on Advertising which is funny because both of those variables help alria profitability there’s no need to allocate to risky marketing campaigns

And there’s no pressure from new enemies so this is an economic moat beyond belief so Altria will only feel pressure from the legal implications of the age going up or in states banning certain products and from existing beef with the other tobacco companies in the industry

Which by the way the show beef on Netflix is a surprisingly good watch 10 out of 10 would recommend I guarantee that you’re going to binge watch it if you give it a try so Altria has all of the ingredients that make up an economic Mo their infrastructure their supply

Chain and tobacco Farms really difficult to emulate and to get get on their level so I don’t see anybody taking their place anytime soon especially in the US and I guess if there is a threat in their radar they’re just going to buy them out and acquire them but as we just

Learned Altria is a slow moving mature company that doesn’t really have much growth left I mean yeah they’re going to grow at a low single digit year after year but what’s the Catalyst in their future so even though right now Altria is considered by everyone to be a slow

Moving mature company and that’s why they have 9% dividing yield when weed becomes federally legalized the question that I want to ask you is which companies are going to be best positioned to scale that industry the weed industry that’s the intangible we have to take into consideration the

Shift from tobacco use to other forms to get a buzz or high I don’t think tobacco is going to be the end game for Altria I think cannabis legalization is going to be massive for Altria because they are a major investor and player in the Cannabis industry I think they’re just

Waiting for it to pass Congress and for it to be legalized imagine with me what’s going to happen when their PE ratio goes from single digits as it is right now to the high double digits because cannabis once it becomes legalized it’s going to be a very high growth lucrative business in the

Meantime they pay a 9% dividend yield just think about it right once cannabis becomes legalized alria has the land resources and Farmers available to transition those tobacco crops to being cannabis forms they have the economies of scale to flood the market with legalized cannabis when that time comes

Which is going to take out all of those small startups and consolidate the Cannabis industry under their umbrella anyways let’s go ahead and move on to the current news and events at surrounding alria so very recently on February 1st they reported their quarterly earnings and not not only that the

Leadership believes the stock is undervalued and so they have decided to do another $1 billion worth of share BuyBacks initiative meaning for each share that you own there’s going to be more quality as there’s less shares outstanding and as we talk about that let’s go ahead and look at their shares

Outstanding over the years so right after the Great Recession there were about two billion shares outstanding for alria but as you fast forward throughout the years you can see that alria has been buying back their shares at of very aggressive rate which is what you want to see as a shareholder because that

Means that each share that you own has more quality over quantity and the biggest call out that I want to mention during this most recent earnings report is that their evapor business segment grew by 35% that’s not a small number folks that’s huge their Vision strategy and

Plan is coming to fruition it’s working they’re going from cigarettes to these different products and it’s working out but to wrap up the current news and events surrounding the company they do still have a headwind wi that they’re dealing with after the effect of dishing out $235 million after the whole Jewel

Debacle so what happened is a lot of teenagers became addicted to nicotine because they were using Jewel the ecigarette and so Altria was sued left and right and now they have to pay out $235 million next let’s go ahead and look at their most recent earnings presentation to see what they wanted to

Highlight to investors so on slide three on your left side what I wanted to call out is their EPS grew by 2.3 % year-over-year this is not fantastic but at least it’s moving in the right direction and then on the right side the cash return to shareholders in the form

Of dividends and share BuyBacks so they are committed to the shareholder and then on slide 10 the state of the evapor market The Vapor Market is actually flooded with a lot of non FDA approved counterfeits of Altria products which are FDA approved the total nicotine space grew in 2023 largely because of a

Legal dispos exposable evap per products these products are being distributed by companies violating virtually every rolling guidance in the US FDA has issued since 2016 Altria is now engaging with Regulators state and federal lawmakers to drive enforcement and to stop this and on a side note in the past

5 years I’ve seen so many little vape shops pop up here and there in the various places that I lived and as I’m learning more and more about the tobacco industry I didn’t know there was such a thing as having an FD approved Evape well I guess now you know and moving on

To slide 12 the nicotine pouch volume is looking like the future of Altria unless it’s just a short-lived Fed so when you look at the demand year-over-year Altria shipped 32% more of their nicotine pouch cans to meet the demand and on slide 14 alria launched their nicotine pouches in

Sweden which is home of Zen everybody on Tik Tok Instagram and YouTube is raving about Zen so for Al to compete with Zin it’s going to be an interesting battle and over here I just wanted to highlight that their smoking revenue is decreasing year-over-year but it’s offset with the

Increase in Altria smokeless categories but it’s worth mentioning because at least the company is being proactive in finding alternative sources of income so even though this is a bad at least there’s a good and that they’re shifting and pivoting and I don’t think this is a terrible thing to see from a business

Standpoint because at least they had a strategy in mind where they could respond to the shift in the consumer’s preference rather than just reacting later on they already have this huge game plan that they laid out and so they’re preparing for this to decline year after year whereas their other

Business segments are going to be increasing and increasing to make up for it and moving on to slide 22 marbor is still dominating the retail market share for cigarettes oci stands for operating company’s income and the oral tobacco segments grew by double digits 10% year-over-year and over here I just

Wanted to call out look at altria’s commitment to giving value back to the shareholders my goodness $6.8 billion in dividends in 2023 they also did a billion dollar of share BuyBacks which they’re going to do again this year they raised their dividend by 4.3% lowkey I think alria is desperate but highkey

This is a really good thing they have less shares outstanding the 9% dividend yield looks like it’s going to be steady and their depth to eida ratio looks manageable they’re sitting at a 2.2 multiple and remember any more than three is bad so at 2.2 that looks fantastic to me essentially the lower

The ratio the better it is because it tells you that the company has the liquidity and the profits to pay off its debt if need be and at 2.2 it just shows you how solid their balance sheet is so next we’re going to be doing some valuation models to figure out the

Intrinsic value for Altria and then comparing that to what the Wall Street analysts believe the price Target should be so the first one is going to be the multiples valuation we’re going to be looking at similar companies in the same industry as Altria to figure out a market-based price for them so every

Single one of the companies that we are comparing Altria to are in the Sin stock industry tobacco or an alcohol player and the medium PE ratio for this industry is going to be 18 and when we take all of that into consideration along with their current EPS of $457 per

Share this spits out a price of $825 for Altria moving right along is going to be the discounted cash flow analysis model essentially we’re going to figure out intrinsic value based on their free cash flow growth and by the way alria has a very impressive balance

Sheet and it’s heavy with cash so when it comes to the free cash flow what you want to see is a trend in the right direction where it’s growing non-stop or for the free cash flow to be stable and consistent so when we take this number

Out it’s closer to probably like a low singled digigit number however the data says that the average growth rate of their free cash flow has been 14% year-over-year but on this channel we like to play it safe and be conservative with our numbers so we’re going to go

Ahead and assume that it’s going to be a low singled digigit number like four so with a 4% free cash flow growth percentage let’s see what happens when we plug that 4% in alongside with some balance sheet numbers this gives us a discounted cash flow price for alria

$747 moving right along is going to be the dividend discount model essentially we’re going to figure out the intrinsic value based on its dividend payments and dividend growth rate so year overy year it looks like the average dividend growth rate is sitting at 5.23% however on this channel we’re

Going to be safe so instead we’re going to shave and trim a little and plug in 3.8% into the formula instead which gives us an intrinsic value for Altria $968 can you imagine what would happen if I plugged in that 5% actually I’ll show you right here at 5% then the

Intrinsic value would be $37 however let’s just go ahead and go with that 3.8% and last but not least is the bare model the Benny Grahams valuation model we’re going to figure out an intrinsic value based on the growth rate projection alongside with the current AAA corporate bonds yield rate so if all

Of that taken into consideration plugging that into the formula this gives us a price of $49.5 so let’s go ahead and figure out what is the intrinsic value for Altria I need a drum roll please please Jimmy the intrinsic value for ultria is going to be

$756 let’s go ahead and see what Wall Street has to say so Wall Street believes that alria should be trading for about $45 and55 cents per share so our intrinsic value that we reached by using very conservative and safe numbers is kind of an optimistic look into Altria so after hearing everything going

Over the intangibles the future the for cast and learning about their industry you’re still interested and you’re trying to figure out what is the acceptable Buy price well we’re going to do that right now so at its current price at about $40 and with a 10% margin

Of safety baited in then your acceptable Buy price is $68 which would give you a $28 discount now if you buy Altria at its current trading price of about $40 to $41 then you get a margin of safety of 46% now I’m going to do something that

I’ve never done before let’s go ahead and plug in wall Street’s number right here $455 a share for ultria with a 10% margin of safety then you’re looking into buying alria when it reaches $41 or lower and at its current trading price you’re probably getting a 11% margin of

Safety now if you are infatuated with that 9% dividend yield but you feel hesitant because you feel that it’s a very risky stock and let’s say that you want a 20% margin of safety bakedin then your acceptable Buy price is going to be roughly $

3644 a share but when we look at the 52e range for alria their 52e low was $397 so if you’re waiting for a 20% margin of safety depending on their performance this year it could happen so what is my recommendation about Altria because initially I was drawn to their

Dividend profile right are there better opportunities and better high quality companies out there I would argue yes with a lot less litigation risk and cloudy future forecast and if the high yield dividend is a variable that is very important then I would probably look at a BDC like ark or Maine or a

Cell tower Reit like CCI or AMT to me personally even though their balance sheet looks phenomenal and their finances are good Altria and the other tobacco stocks just seem like a risky investment based on their business cycle coming to an end of the road period the high growth in opportunities in my

Opinion were the pre-1980s when everybody had a cigarette in their mouth and the resta restaurants and on airplanes and Etc however we learned that the marijuana industry is a catalyst for the tobacco players with that said altria’s balance sheet dividend history and free cash flow says

That they still have a fight left within them even though I hate them for what they do on a personal level I would probably consider jumping in when the price reaches the high 30s again with a buy Target price of around $39 or so I’m not in love with the company enough to

Jump in right now when it’s trading for about $440 to $41 I’ll be honest there’s other companies on my radar that are more important so in short alria is a dividend compounder with cheese it’s a decent no it’s not decent it’s a good company personal feelings aside and

Don’t just think of this as buying a stock and hoping that it goes up my mentality with investing is the belief that I am buying into a company a business that has real operations with a real product and I am becoming a part owner of of it and when I think about

Altria and their business model and their economic mode it just screams that it’s a good company however their PE ratio being single digits just tells me that the stock market is not in love with Altria I guess I have to take back what I said of them being a risky

Investment because when I think about their future do I see tobacco cannabis and nicotine disappearing anytime soon absolutely not I think they’re going to have its place in society it’s just a more of a matter of my personal feelings getting in the way anyways this has been an episode of dividend Compounders with

Cheese I will talk to you next time stay safe