TheStreet.com Ratings: Altria's Distraction Discount

If KFT and its dividend payments are gone, what financial flexibility is left at MO?

The risk of an Altria dividend-cut appears minimal. Near term there is likely to be a strain on corporate cash flow, but this appears very manageable. Altria has raised its dividend 39 times in the last 37 years. There should still be adequate dividend coverage. Currently, Altria is paying out $6.7 billion in dividends annually, or 63% of its current earnings. In the meantime, the best way for Altria to increase dividend coverage is to boost real earnings power in its core tobacco businesses and not make dilutive acquisitions with its remaining resources.

Our more objective stock ratings model agrees on the possibilities of higher valuations and continuing dividend payments. Altria, along with Reynolds American, regularly appears on our weekly Top 40 Best Large Cap Buy List, the screen that looks at those stocks with more than $10 billion in market cap. The ratings model gives Altria very high marks for efficient use of capital and low stock-price volatility. Although there is some concern about low returns to shareholders historically and anemic top-line and operating income growth, the future does look brighter for this stock than it has in a long time.

On Thursday, both Altria and Reynolds American management are scheduled to present at a Morgan Stanley/Dean Witter conference for institutional investors in New York. Expect to hear more good things about these stocks as the understanding about this industry becomes more positive.

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