Altria Is a Smokin' Cash Cow

NEW YORK ( TheStreet) -- Lately, the market has made a case for consistent growth in revenue, earnings and dividends, and has been very, very kind to Altria Group ( MO).

The stock, in return, has awarded investors with a three-year total return of about 154% -- I'll take that to the bank.

With 45 dividend increases in less than that many years, investors still like the cash cow. More recently the stock had a rise over the past month as this hourly trading graph provided by Barchart shows:

If you're not sure that the market rewards dividend stocks, just look at the fact that over the last six months the market as measured by the Value Line Index has fallen 5% while Altria is up 20%.

Is there a case for holding on to this dividend-paying stock?

Altria Group, through its subsidiaries, engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. It offers cigarettes primarily under the Marlboro brand; smokeless tobacco products under the Copenhagen, Skoal, Red Seal, Husky, and Marlboro Snus brands; cigars principally under the Black & Mild brand; and pipe tobacco.

The company also produces and sells blended table wines under the Chateau Ste. Michelle and Columbia Crest names; and distributes Antinori and Villa Maria Estate wines, and Champagne Nicolas Feuillatte in the United States.

In addition, it maintains a portfolio of leveraged and direct finance leases in rail and surface transport, aircraft, electric power, real estate, and manufacturing. The company sells its tobacco products primarily to wholesalers, including distributors; large retail organizations, such as chain stores; and the armed services.

Altria Group, markets its wine products to restaurants, wholesale clubs, supermarkets, wine shops, and mass merchandisers. The company was founded in 1919 and is headquartered in Richmond, VA. (Yahoo! Finance profile)

Factors to Consider

Barchart technical indicators:
  • 96% Barchart technical buy signal
  • Trend Spotter buy signal
  • Trading above its 20-, 50- and 100-day moving averages
  • 15 new highs and up 4.69% in the last month
  • Relative Strength Index 69.38%
  • Barchart computes a technical support level at 35.77
  • Recently traded at 36.17, which is above its 50-day moving average of 34.12

Fundamental factors:
  • A widely followed income stock on Wall Street where 11 brokerage firms have assigned 15 analysts to follow the stock
  • Analysts project revenue will increase by 1.8% this year and another 1.4% next year
  • Earnings are estimated to increase by 7.78% this year, 7.20% next year and continue at an annual rate of increase in the neighborhood of 6.2%
  • These consensus numbers result in two strong buy, five buy, seven hold, one underperform but no sell recommendations to clients
  • This is not a growth stock but analysts predict an annual total return in the 5% to 7% over the next five years
  • The P/E ratio is 16.9, which is slightly above the market's P/E of 14.2
  • The dividend rate of 4.54%, which is about 75% of projected earnings and much higher than the 2.5% dividend rate of the market
  • The balance sheet gets a B+ financial strength rating
  • The company keeps moving into the smokeless tobacco arena
  • Diversification into the wine and financing sectors should replace some of the lost cigarette sales
  • A very good share buyback program enhances stockholder value
  • TheStreet Ratings gives the stock a B+ rating

I usually don't include a graph in my fundamental section but I have to point out the price stability and price growth persistence over the past three years with a graph of the weekly price trend.

Investor interests:
  • As stated, both the professional and individual investor seems to favor the dividend-paying cash cow
  • Jim Cramer has liked this stock for some time
  • Brokerage firms having the stock on their hold or better lists include Deutsche Securities, Stifle Nicolaus, Credit Suisse, JPMorgan, Citigroup, Barclays Capital and UBS

How does the market score MO against its peers? In the past year MO was up 38%, Philip Morris International ( PM) up 30%, British American Tobacco ( BTI) up 16% and Imperial Tobacco Group ( ITYBY) up 15%.

Philip Morris International
  • TheStreet's rating of B
  • Dividend rate of 3.38
  • Revenue project to grow 1.9% this year and 5.5% next year
  • Earnings estimated to increase by 6.1% this year and 9.89% next year

British American Tobacco
  • Dividend rate of 3.79
  • Revenue projected to decrease by 0.4% this year but increase by 4.2% next year
  • Earnings estimated to grow by 6.7% this year and 10.7% next year

Imperial Tobacco Group
  • Revenue to be down 66.3% this year but back up 68.2% next year
  • Earning estimated to increase at an annual rate of 8.10% over the next five years

Conclusion: This is not a growth stock as I define it. A growth stock should have projections of increases in revenue, earnings and price of over 10% to be in that category.

For those of you holding this stock for income there seems to be no reason to sell it at this time. It is ideal for income investors or in an IRA set up under a dividend reinvestment program.

At the present time the market is valuing income at a premium. Please watch the share price to see when that changes. In the long run it is the total return that counts and that is what you should monitor. Watch the moving averages and turtle channels for price weakness.

At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.