The Marlboro Man may be a relic of cigarette advertising but Marlboro’s parent company is alive and well.

altria-dividend

Altria (NYSE: MO), which changed its name from Phillip Morris in 2003, reported fourth-quarter and full-year earnings last week. Among several key takeaways for investors is this all-important fact: the Altria dividend is safe.

Best known for its Marlboro cigarette brand, Altria is also the name behind Parliament cigarettes, MarkTen eCigarettes, Copenhagen and Skoal smokeless tobacco brands and countless others.

Like other tobacco stocks, Altria is well-known for its juicy dividends. Altria itself currently pays a 3.9% dividend. Rival Reynolds American (NYSE: RAI) currently pays a 3.93% dividend. Competitor Lorillard (NYSE: LO), which is in the process of being acquired by Reynolds in a somewhat complicated deal announced in 2014, pays a 3.74% dividend.

In the earnings call commentary, Altria’s management team reaffirmed its commitment to dividends. The company specifically mentioned a target dividend-to-EPS ratio of 0.8 to 1. That means that Altria intends to pay out 80% to 100% of earnings to shareholders via dividends.

The company is also buying back stock. It repurchased nearly $1 billion worth of shares in 2014.

Altria stock fell around 2.4% Friday after its early morning earnings report was released.

The company’s $0.63 earnings per share in the fourth quarter were slightly below analyst expectations of $0.66 per share, though significantly higher than $0.24 per share earned in the fourth quarter a year earlier. Despite being significantly more profitable, Altria reported a 2014 revenue increase of only 0.2% over 2013. Its U.S. market share grew from 50.7% to 50.9%.

Still, the major appeal to owning a company like Altria is the dividend stability and dividend growth. I would argue that the dividend stability thesis and the dividend growth thesis are both very much intact.

Considering that the company is targeting 80% to 100% payout ratio, there appears to be additional room for dividend increases. With $2.56 worth of earnings per share in 2014 and a current quarterly dividend payment of $0.52 per share, Altria is only paying 81% of its earnings to shareholders through dividends.

This is the very low end of Altria’s stated payout ratio target, suggesting that additional dividend hikes and possibly even additional share repurchases are on the way.

The company boosted its quarterly dividend last August from $0.48 to $0.52. I would expect the Altria dividend to jump again this August, if not sooner. In addition to the dividend growth, investors can expect continued share appreciation as well.

The stock is up 8% already this year while the S&P 500 has fallen 3%. Altria shares rose 29% in 2014 while the S&P 500 rose only 12% and the stock has climbed 168% over the past five years while the S&P gained 86%.

Meanwhile, the dividend yield of Altria has been roughly double that of the S&P 500 during that entire period. Simply put, Altria’s overall performance is more than double that of the S&P 500’s over each period.

The dark clouds hanging over the industry include a general trend of declining cigarette sales. But eCigarettes offer a fresh opportunity for this huge industry and I find it hard to believe that the world will give up cigarettes en masse. Though there are many eCigarette manufacturers and the industry remains largely fragmented, Lorillard, Reynolds and Altria are in a position to use their deeply entrenched distribution networks and advertising prowess to dominate this growing market.

This dividend champion remains a quality stock for income investors and those investors who want to sleep soundly at night. It may not be the most exciting stock in the market but Altria and the Altria dividend aren’t going anywhere anytime soon.

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Published by Wyatt Investment Research at