Within investing circles, Altria Group (NYSE: MO) has earned a well-deserved sobriquet – “Mr. 20 Percent.” It refers to the near-20% average annual returns Altria stock has generated since the late 1950s.
If you could have bought only one S&P 500 stock 55 years ago, Altria is the stock. No other S&P stock has outperformed it.
Impressed by Altria’s long-term performance, I recommended it to High Yield Wealth readers four years ago. And, yes, Altria has delivered average annual returns of 20% (actually, in excess of 20%) since then. I’ve been so impressed with Altria’s recent performance, that I recommended it to Personal Wealth Advisor readers in May 2014. The record continues: Altria has delivered annual returns in excess of 20%.
If recent financial performance is an indicator, more 20% annual returns lie ahead.
Altria’s latest quarterly results were outstanding. As is frequently the norm, the company smoked consensus estimates. Revenue came in at $6.6 billion, easily blowing past estimates for $4.7 billion. Altria spun its higher revenue into higher earnings growth. EPS posted at $0.74, easily eclipsing estimates for $0.71. Year-over-year, EPS was up 13.8%.
You no doubt know Altria for cigarettes, and rightly so. Marlboro is the premier cigarette brand in the world. Here in the States, Marlboro commands 45% of the market. But Altria is more than cigarettes. It’s also the premier smokeless tobacco company with its Copenhagen and Skoal brands. It owns a leading mass-market cigar brand, Black & Mild. It also owns a profitable wine segment.
The lesser segments are doing well and growing, but cigarettes still drive the company. It’s no secret that cigarette consumption has been falling for decades. Because cigarettes are remarkably price inelastic – consumers will continue to buy as prices rise – Altria has offset falling volume with rising per-unit revenue.
Now, it appears the tables have turned. As incredulous as it might sound, cigarette volume is picking up. Altria reported a 3% increase in volume during the quarter. After adjustments, which include retailers’ inventory movements, Altria said volume increased 1%. This is still impressive when you consider most of Altria’s competitors reported flat-to-decreasing unit volume.
Management is Altria’s ace in the hole. I’m convinced no management team could run Altria’s operations as well as current management. This same management further enhances the company’s value through shareholder-friendly initiatives: namely, share buybacks and dividend growth.
Altria continually and methodically lowers the share count each year. Last quarter, it bought $263 million worth of stock, which exhausted the prior buyback authorization. With the latest quarterly results, management announced a new $1 billion share repurchase program. This means Altria’s impressive net income will continue to be concentrated on fewer and fewer shares.
Dividends are another variable in the value equation. Altria has decades of annual dividend growth in its rear-view mirror. Decades more likely lie ahead.
Today, Altria shares yield 3.9% based on the $2.08 annual payout. The current yield is good, but not great from a historical perspective. When I first recommended Altria shares to High Yield Wealth readers, the yield was above 5%. Thanks to dividend growth, Altria shares now yield 7.6% on my initial recommendation price. But thanks to price appreciation, Altria shares now yield less than 4%.
The good news is investors can capture more income and a higher yield without waiting for dividend growth. My colleague Andy Crowder has a simple, but proven, strategy for raising Altria’s income stream. Andy has delivered 30.5% more income to Altria shareholders who have followed his trading recommendations over the past two years.
Click here to learn Andy’s strategy for turning good income-generating stocks, like Altria of today, into great income-generating stocks, like Altria of yesterday.