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Altria (MO) – Still My Highest-Rated Stock
I rarely talk about Altria (MO), because (other than reinvesting) I haven’t bought a single share since December of 2008. I bought 500 shares back then at an average price per share of $16.09, including commissions. I spaced out on reinvesting for a year or two, but then began reinvesting all of my dividends. With reinvestment, I now own 562 shares. It has been a beautiful core holding for me, and – while I of course monitor it, like all of my holdings – I don’t really give it too much thought.

I will not be buying any more shares of MO with new money any time soon because it is already a heavy chunk (perhaps too heavy) of my dividend growth portfolio. But I recently updated my master spreadsheet that includes all of the stocks that I both hold and watch, and my eye landed on good old Altria, sitting up there at the top of the list, just like it has month in and month out for years.

Even at today’s prices, MO gets the highest score of all the stocks that I watch. That is, it features the best combination of factors: (1) A huge and reliable streak of raising the dividend – like clockwork, they will declare an increased dividend in August, the 45th annual increase in a row. (2) An excellent starting yield – right around 5 percent, if you count on the coming increase. (3) A sustainable payout ratio. Yes, it is high, around 80 percent, but the company has 80 percent as an explicit target payout ratio, so as long as earnings are moving in the right direction, I do not penalize them for the high ratio. (4) A reasonable P/E ratio, around 17. (5) Growing earnings. If this year’s estimates hold, it will be about a 17 percent increase over last year, with a five-year average increase around 10 percent. Not gangbusters, but not too shabby for a mature company like Altria. (6) Growing dividends. 7 to 8 percent increases every year for the past few years. I’m looking for about the same to be announced next month. (7) The intangibles: well, they operate a fairly simple business, sell an addictive product, and bring in reams of cash each and every quarter. Worry all you want about declining smoking rates, taxes, packaging laws, regulations, litigation, etc. etc. etc. These concerns have been front and center for tobacco companies for decades – they are not new headwinds. And MO has thrived in the face of all of them.

So, although I don’t mention it much, I thought Altria deserved a thread of its own.
Thanks for this write-up! I was thinking that pm would be my second buy, but I'll have to give mo a close look.
No problem, Bobbyboy. In my opinion, the share price of a stock generally shouldn't influence the investment decision, but one small reason MO might be more fun for you in these early stages of building your portfolio is that the share price is far less than PM. So if you only have, say, $400, you could get 10 shares of MO instead of 4 shares of PM. And, with the higher yield, you'll get more dividends to boot. Best of luck!
I think I may be getting the hang of this. After this thread got me excited about mo, I found myself hoping it would go down even more today! I'm not sure that I'll be able to do that after I buy some, but it is a good sign maybe.
MO is a reasonable buy here, dividend raise coming too (knock on wood).

Of course it could go lower, nobody knows but if you're going to reinvest the dividends and add to it, going a little lower = good. Having a stock that goes lower and liking it is a tough concept for many to get though.
Just did a full update of my watch list, and for the first time in a very very long time, MO was knocked off the top perch. Due to the solid run-up in price over the last couple of months, its valuation-based scores dropped a bit. AS a result, it dropped overall to my number 3 spot, behind AFL in first and PM in second.
Interesting. Would you be willing to share your top 5 at the moment, Kerim?
(11-13-2013, 03:45 PM)TomK Wrote: Interesting. Would you be willing to share your top 5 at the moment, Kerim?

Sure, though must be taken with a grain of salt. I'll put up a separate thread about it in a bit.

EDIT: Here is a new thread with my top dividend growth stocks.

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