Is Altria Stock a Must-Buy for Dividend Investors?

MO is up nearly 20% over the past 12 months

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Last Thursday, Altria Group, Inc. (NYSE:MO) suffered a 6.2% bear gap after the tobacco giant's lackluster quarterly report. Not only did third-quarter earnings and revenue whiff on expectations, but full-year guidance was slashed. Morningstar noted Altria is "no longer a pure play on U.S. cigarettes", while Jefferies noted the company needs to make moves to add incremental growth beyond cigarettes." Even CEO Billy Gifford said on the conference call that "the future of e-vapor is still uncertain." With all of this negativity swelling up, how should contrarian investors proceed? 

Altria stock remains up 9% year-to-date, and 19.5% year-over-year. In the short term though, the shares are in danger of forming a bear flag pattern on the charters below the $45 level. Analysts remain split, and a shift could tilt MO's future direction; 50% of the brokerages in coverage maintain either "hold" or "strong buy" ratings.

Fundamentally, Altria Group doesn’t offer much growth opportunity, with its revenues increasing just 8% since fiscal 2017. The tobacco company has also struggled to find consistency on the bottom-line. In fiscal 2019, MO reported $1.3 billion in net losses, marking an $11.5 billion decrease in net income between fiscal 2017 and fiscal 2019. However, Altria stock’s inflated price-earnings ratio of 29.55 is expected to see a significant improvement, with analysts placing a 9.12 forward price-earnings ratio on MO.

However, Altria stock is amongst the best dividend plays available in the market, offering a dividend yield of 8.15%, or a forward dividend of $3.60. In addition, the tobacco company has paid out dividends since fiscal 1989 and has consistently grown its dividend since fiscal 2009, making MO far less of a risk for dividend-focused investors.

 

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