If you were to ask me to pick one stock, and it could be the only stock I could own, which stock would I pick?

Apple (NASDAQ: AAPL) is a top pick. Perhaps I would choose Exxon Mobil (NYSE: XOM). Johnson & Johnson (NYSE: JNJ) seems reasonable. You could argue persuasively for any of the three. Their history of staying power points to a future of staying power. Still, I would pass.

Then I would surely pick the obvious: How could I not pick Berkshire Hathaway (NYSE: BRK.b) and not side with its octogenarian leader?

I could bypass on Berkshire (and I would) because I have a better stock. If the choice is one stock — and one stock only — Altria Group (NYSE: MO) is the stock.

The pick appears improbable. After all, no sector is more vilified by the Gladys Kravitzes of the world than tobacco. The person who lights a cigarette in public will draw the same condescending sneer as the person with uncontrollable flatulence in a crowded elevator.

What’s more, no sector is more subjugated to continuous overlording. The United States has passed a battery of legislation to fight smoking. But it’s not all bad; some legislation cloaks hidden benefits. For example, bans on advertising lower marketing costs and handicap young upstarts in challenging established brands.

What about the secular decline in cigarette consumption?

Yes, cigarette consumption is in a secular decline, but that doesn’t mean the decline will lead to zero. Indeed, the slope of the decline rate has moderated. In the third quarter, Altria reported that cigarette volume declines have slowed over the past 18 months.

Altria Acquisitions and Growth

Despite the secular decline, Altria continues to grow. The company has completed a number of accretive bolt-on acquisitions over the past 10 years: US Tobacco, the maker of Copenhagen and Skoal smokeless tobacco, and John Middleton, the maker of Black & Mild cigars, are two notable acquisitions that expand Altria’s tobacco portfolio.

Last week, Altria announced another accretive bolt-on acquisition with the purchase of privately held Sherman Group Holdings. The company is best known for its Nat Sherman line of handmade cigars and luxury cigarettes. Nat Sherman will complement the Marlboro brand, which also falls into the premium category.

That said, “growth” is a relative word. On the top line, Altria’s growth creeps along at a relatively sedate pace compared to the stereotypical growth company. If Altria experiences 5% in annual revenue growth, it’s an exceptional year.

The bottom line is where growth excels — both relatively and absolutely. Altria continually grinds out 8%-to-10% (and more) annual EPS growth. Management guided for EPS to range between $2.98 to $3.04 for 2016. If we go with $3, that’s a 12.3% increase over 2015 EPS.

Buybacks for Altria Shares

Altria’s EPS growth is driven by relentless efficiency gains and continual share buybacks. Operating margins of 41.4% in 2012 rose to 45.9% in the latest reported quarter. Shares misunderstandings have been reduced to 1.96 billion today from 2.02 billion in 2012.

Relentless EPS growth is a fundamental driver of investment value, and so is relentless dividend growth. Altria’s dividend also increases at an 8%-to-10% annual rate. Relentless EPS and relentless dividend growth combined to produce relentless return on investment.

For the past 60 years, Altria shares have produced an average annual return of roughly 20%. The return is the product of share-price appreciation and dividend yield. 2016 held to form; Altria’s share returned just over 20%.

Could we see another 20% return in 2017?

Altria has certainly started the new year in prime form. Altria shares hit an all-time high yesterday. Year to date, the shares are up 4.5%. Investors appear to approve of Altria’s recent acquisition of Sherman Group Holdings.

But investors need to tread cautiously at this point. Altria shares are pricey, trading at 26 times current earnings. The dividend yield, at 3.5%, is the lowest it has been since Altria spun off Philip Morris International (NYSE: PM) in 2008. If I were to bet whether we’ll see another 20% return this year, I’d reluctantly bet no.

Then again, if I had no choice but to own only one stock and to hold it in perpetuity, make it Altria Group: “Mr. 20%.” I’m reasonably confident I’d get my share of 20% annual returns.

Published by Wyatt Investment Research at