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How to Find an Income-Driven Stock With Strong Dividends

Real Money’s Bob Ciura says Altria Group is a diverse consumer products company that historically has withstood tough recessions.

What’s better than an income-driven stock that boosts its dividends on an annual basis? How about a stock that hikes its dividend yield and its dividend growth every year?

That’s the take from Real Money's Bob Ciura.

Ciura is hot on the trail of one dividend stock on the exclusive Dividend Kings list, with a track record of 50 consecutive years of dividend growth, and a 7.2% dividend yield.

That stock is Altria Group  (MO) , which Cirua says represents an “attractive stock” for income investors. Read more in Ciura's column, This Dividend King Has a Habit of Delivering High Yields.

This from Ciura:

“Altria, while often associated with tobacco, is actually a diverse consumer products company. The vast majority of its sales and profits come from its tobacco operations. It manufactures cigarettes under the Marlboro brand, its most valuable brand which by itself captures over 40% of the U.S. retail market share.

“Over the past few years, Altria has diversified its business model beyond tobacco by acquiring investment stakes in companies that operate in multiple adjacent businesses. For example, Altria owns 10% of beer giant Anheuser-Busch InBev  (BUD) . It also invested $13 billion in vaping giant Juul Labs, and it separately invested $2 billion in Canadian cannabis producer Cronos Group  (CRON) .

Ciura also approves of Altria’s slide into oral nicotine, particularly with the $250 million acquisition of the remaining 20% of Switzerland-based Burger Söhne Group it didn't already own.

The acquired company manufactures the growing On! business, which continues to take market share. In the first quarter, On!'s retail share of the oral tobacco category in stores with On! distribution was 3.1% for the 12 months ended March 31, an increase of 0.7% from the 12-month period ended Dec. 31.

Ciura notes that Altria is doing a robust job of generating revenue growth outside tobacco, “which is increasingly important as the domestic smoking rate continues to decline,” he states.

Altria is investing organically to prepare for a post-cigarette future, Ciura says. And its penchant for generating cash should also attract income-minded investors – because that’s what solid dividend companies do.

As a tobacco company, Altria does not have a high growth runway up ahead. Instead, what makes Altria so valuable for investors is its ability to generate cash, and return cash to shareholders at such a high rate. Thanks to Altria’s huge cash flow, the company is more than equipped to boost its dividend payout every year, Ciura writes.

"Altria is a shareholder-friendly company. With a high level of cash flow and a target dividend payout ratio of 80%, we view Altria's dividend as highly safe," says Ciura.

Read more of Ciura's stock analysis and investment ideas on Real Money.