Yes, Altria (MO) is a sin stock. But for income investors, it would be a sin not to own it.
Altria is also much more than one of the most prominent tobacco stocks. Beyond that negative label, it’s an incredibly well-run company that keeps on growing in one of the most onerously regulated markets in the world. And MO stock now throws off a 4.3% dividend after a recent 9% boost.
Much of Altria’s recent growth has come from focusing the company on its tobacco-derived product lines. The only two divisions that don’t directly relate to tobacco are its Ste Michelle wine business and its operating company that manages its real estate holdings.
MO reported earnings in late August, and its results show that things continue to go well across all divisions.
Altria Earnings Show Broad Strength
While smoking in general has been reduced and continues to decline in the U.S., MO’s market share in its leading cigarette brand — Marlboro — increased to 44%. What’s more, sales of cigarettes increased from 60.9 billion sticks sold in the first half of 2014, to 62.3 billion sticks in the first half of 2015.
As a whole, MO’s Phillip Morris tobacco division holds a 51% market share across all brands in the U.S. That means one of every two cigarettes smoked in the U.S. comes from the MO brand.
Its smokeless tobacco unit also saw 4% net revenue growth in 2Q, and there’s a new Marlboro brand smokeless product available now as well.
But its two most promising sectors are Nu Mark and Ste Michelle. Nu Mark produces all of Altria’s e-cigarettes and smoke-free products. It sells Mark Ten e-cigarettes as well as Green Smoke. Vaping is a growing trend, especially with the younger generation that have grown up under various “don’t smoke” campaigns but are looking for similar but socially acceptable experience.
E-cigarettes are also popular with “part-time” smokers who don’t have to buy a whole pack of traditional cigarettes, as well as long-time smokers that want to transition away from traditional cigarettes. Nu Mark also sells Verve Discs, which is tobacco-derived nicotine gum that can be purchased in stores like cigarettes. These new alternatives are growth engines that no one can put a price on yet.
And then there’s Ste Michelle, which holds more than three dozen wineries from around the world in its portfolio. Second-quarter revenue was up 10% in this division.
Bottom Line on MO Stock
The Tobacco Transition Payment Program was put into place when the industry was deregulated in 2005. It required that Big Tobacco pay farmers that were hurt by the new rules and helped them transition crops beyond tobacco. It cost the big three tobacco firms about $1 billion annually for the last 10 years.
Now the program is over, and MO will see an extra $300 million on its bottom line this year. The firm hasn’t said exactly where it’s going to put that money, but Altria did just announce a $1 billion share repurchase program, which may have benefited from the extra cash. And MO could always go the route of a special dividend payment. Regardless, the end of the Tobacco Transition Payment Program is a notable event.
What’s more, MO has a significant position (36%) in SABMiller (SBMRY), the No. 2 brewer in the world. SAB stock has been hit by global turmoil, since it trades in London and South Africa, but just this week a top analyst at Nomura noted a potential 21% upside for the stock in coming quarters.
What’s good for SAB, is also good for MO. And at this point, everything is looking up for both.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
