If you plunked down $10,000 in 1968 on the predecessor stock to Altria Group Inc (MO), today you’d be a millionaire 66 times over. It’s this kind of impressive return that even Warren Buffett would be jealous of.
It truly is the most successful stock in history.
We know how it came upon these fabulous returns: by getting people addicted to its products; products that just happen to kill. Unfortunately, not everyone can handle owning a piece of a company whose history is littered with litigation — past, present and future.
Altria stock is an acquired taste.
Ironically, for six years in a row, it has been named by Corporate Responsibility Magazine as one of the 100 Best Corporate Citizens in America. It’s an enigma for sure.
While its returns continue to light up the big board — up 18.2% year-to-date and within 5% of an all-time high — investors wonder what’s next for the maker of Marlboro and its other cigarette brands.
Just days after getting approval from the U.S. Justice Department to merge, the $106 billion deal between Anheuser Busch Inbev SA (ADR) (BUD) and SABMiller plc (ADR) (SBMRY) is once more up in the air after SAB Miller’s CEO sent a memo to employees Wednesday ending all contact with its suitor.
Altria is SABMiller’s largest shareholder, with 27% of its stock; it would own 10.5% of the merged enterprise and receive $2.5 billion in pre-tax cash should the deal go through. While it has already given its blessing, some investors including Aberdeen Asset Management want a better price for their shares.
And so the wait begins.
Real Movers for Altria
Forget about that M&A nonsense. It will all work out in the end. Either way, it’s a sideline investment for Altria and not an integral part of its operations generating just 10% of its pre-tax income.
The real potential for those investors able to stomach an investment is the federal legalization of marijuana. Not a new idea, I realize, but one that can’t be ignored. I’ve been promoting the idea for some time and when it actually occurs, Big Tobacco will be waiting with open arms.
Right now, 25 states have legalized medical marijuana, with four (Alaska, Colorado, Oregon, and Washington) and Washington, D.C., also allowing recreational use.
California, the nation’s largest pot market due to the state’s long-time medical marijuana industry, is putting recreational use on the November ballot. Arkansas, Florida and Missouri will take up the question of medical marijuana.
It seems odd that a wave of legalization sentiment is sweeping the country and yet the federal government appears light years away from joining the party.
The Drug Enforcement Administration is currently debating whether to reschedule marijuana from a schedule I drug to a schedule II drug. The move would allow scientists and researchers to more closely study it; it would also allow doctors to officially prescribe pot, not just recommend it.
That’s just the first step of many that would need to take place before the Feds would be able to legalize marijuana. Experts suggest that the United Nations and other countries would have to get involved in order to unwind several international treaties between the U.S., Canada, Mexico, and many in the European Union. Needless to say, it won’t happen tomorrow or the day after that.
So, why would Big Tobacco care about the Feds legalizing it, as opposed to what’s happening now at the state level?
Well, a big part of the answer has little to do with marijuana itself, but rather with banks and credit unions who are currently prohibited from accepting marijuana revenues. Sure, the Feds look the other way, but until banks are comfortable handling this money, I doubt Altria is interested in rocking the boat.
The other issue preventing Big Tobacco from getting involved is the threat of legal action from the Federal government itself. Not endearing itself to Washington through ongoing litigation, it’s unlikely they’d turn a blind eye to a multinational such as Altria playing the marijuana game, albeit, state by state.
The simple fact is that Big Tobacco will continue to pay fat dividends whether marijuana is part of their product list or not. If you can handle owning shares in Altria, you’re almost certainly guaranteed an annual 3% dividend yield and another 12%-13% in capital appreciation.
That’s the downside.
The upside comes if the Feds legalize pot in five to 10 years and Altria goes on to capture 20% of the recreational marijuana market in this country. Scoff if you will, but a lot of people still drink Budweiser and other awful tasting beers from the big beer producers despite the fact better-tasting craft beer alternatives can be found in every part of the U.S. today.
The same will happen with weed, and when it does we’ll probably still be calling Altria the most successful stock in history.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
