Altria (NYSE:MO) is continuing its post-earnings recovery. Altria stock has suffered in recent years, with the crisis surrounding vaping being its latest setback.
As the vapor continues to settle, investors suddenly have a profitable, low-cost stock that continues to offer a generous and increasing payout. Altria stock has prospered amid worse conditions and will continue to do so as it puts the vaping controversy behind it.
A Recovery Has Begun
Altria stock has begun an up-trend. The equity established a bottom on Oct. 31 after it announced earnings. The third-quarter report brought its share of bad news. Altria wrote down the value of Juul by $4.5 billion.
While the Centers for Disease Control and Prevention (CDC) has not explicitly cited a cause, they suspect vitamin E acetate as at least one culprit. Moreover, as InvestorPlace contributor Josh Enomoto points out, the number of deaths has leveled off in recent days. Some manufacturers added vitamin E acetate to some vapes containing THC, the psychoactive ingredient found in marijuana.
This would appear to not implicate Juul directly. Nonetheless, Juul has still become significantly less valuable. Investors should note that it has also harmed other tobacco and marijuana stocks. Both Philip Morris International (NYSE:PM) and Cronos Group (NASDAQ:CRON) had bet heavily on the vaping industry.
Still, when they announced the write down, they also reported better-than-expected earnings and revenue. As a result, the Altria stock price has trended higher. It trades at over $48 per share as of the time of this writing.
I think the market made the right call in bidding the price higher. Despite the rise, it trades at just over 10.6 times forward earnings. Analysts forecast earnings growth of 5.5% both this year and next. While that figure will not exactly light Wall Street on fire, the dividend yield of 7% might. Given these financials, I think Altria stock is a reasonable buy.
MO Stock Thrives Amid Turmoil
Investors should also appreciate that MO arguably stands as one of the more surprising equities in Wall Street history. They sell an addictive product that often cuts lives short. Such offerings usually lead to scandal and then bankruptcy. Altria faced its share of scandals. Lawsuits led to both humiliating admissions and billions in court and settlement costs.
Moreover, its product has become less popular over the last few decades. In the 1960s, an estimated 42% of Americans smoked regularly and society placed few restrictions on where people could smoke. Today, that percentage has fallen to 15.5%, according to the CDC. Today, smoking is allowed in very few areas.
However, instead of bankruptcy, MO has become a sort of Wall Street darling since the Surgeon General first warned against smoking in 1964. As I pointed out in a recent article, MO stock traded at a split-adjusted price of 13 cents per share at that time. Today, the quarterly dividend has risen to 84 cents per share. Hence, this has been a phenomenal investment for a handful of long-term investors who kept the faith.
While devastating, the issues with Juul pale in comparison to the threats faced by the health issues related to tobacco. Altria stock bounced back from that. Right now, I see history repeating itself as the vaping crisis begins to subside. With the low multiple and generous dividend, I see MO stock continuing its march higher.
The Bottom Line on Altria Stock
Although devastating, investors look poised to keep faith with MO stock despite the costly Juul write-down. Altria made what looked like a prudent investment in Juul vaping products last year. However, deaths linked to vaping have hammered both the value of Juul and, by extension, MO stock.
However, Altria stock has faced worse before, particularly with the tobacco-related lawsuits of previous decades. Despite these costs, it has moved higher to the point that some investors earn more in annual (or sometimes quarterly) dividends than they originally paid for MO stock.
For investors wanting a battle-tested stock with a huge payout, they will find few choices better than Altria.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
