adplus-dvertising
Connect with us

Investment

Altria’s 9% Dividend Yield Isn’t the Most Important Investment Factor. This Is the One Investors Should Watch

Published

7 months ago

 on

Altria has a huge dividend yield, but long-term investors need to look past the alluring yield and focus on the business.

It is very easy to lose sight of the most important details when there’s one detail that stands out in a huge way. For example, the income you could generate by adding ultra-high-yield Altria (MO -1.40%) to your portfolio is very alluring, given its incredibly high 9% dividend yield. But for long-term income investors trying to live off the cash their portfolios generate, buying Altria for its yield could end up being a bad decision. Here’s why.

Altria is giving investors what they want

To put it simply, the biggest reason to like Altria today is its huge 9% dividend yield. The dividend has been increased for years, so management clearly understands that its shareholders want income. In fact, the entire business model is currently geared toward paying that dividend. That’s a big problem if your holding period is measured in decades.

Image source: Getty Images.

While that yield may get you to look at the stock, you have to look past the yield before deciding to buy it. This all boils down to a look at Altria’s business. Altria effectively owns the U.S. rights to Philip Morris cigarettes. Several years ago, Altria split off its foreign business as a stand-alone company known as Philip Morris International (PM -0.99%).

Cigarette volumes have been on a steady decline in the United States for a long time. To offset those declines, Altria has focused on increasing cigarette prices so it can continue to pay out a growing dividend. That has worked out well so far, which may be giving a false sense of security to income investors enamored of the 9% yield on offer here. From a business perspective, at some point, price increases are likely to exacerbate the volume decline issue.

And that time could be fast approaching when you consider how far volumes have dropped over the past five years. To put a number on that, in 2018 Altria produced 109.8 billion cigarettes. In 2023 that number had fallen to 76.3 billion, a roughly 30% change in the wrong direction. In fact, Altria warned for the first time in 2023 that illicit e-vapor products, which are generally cheaper than buying cigarettes, are an increasing competitive threat. Basically, product cost looks like it is a big problem for cigarettes.

Would you buy Coca-Cola (KO -0.89%) if its volumes had declined 30% in five years while it was sharply jacking up its drink prices? Probably not, because you would likely question whether or not management’s aggressive pricing decisions were exacerbating the company’s pain.

Altria has tried and failed and is trying again

Here’s the thing: The volume decline isn’t the only problem at Altria today. In fact, the company knows full well it has to do something or its business will eventually wither away. That’s why it was an early investor in the vape space, putting money into industry pioneer Juul. It also jumped aboard the marijuana train, buying a massive stake in a grower as the industry started to take off.

Both of those investments turned into billion-dollar black holes for investors, with Altria exiting them and taking massive write-downs. In other words, the company tried to find a new avenue for growth and failed. So not only do investors have to worry about the decline of the cigarette business, but also the company’s execution in any other business it tries to enter.

On that front, the company recently bought NJOY, another maker of vape products. To be fair, NJOY is further along in its business development than Juul was. So there’s a reason to believe that this vape investment will work out better than the last one. But even if it does turn out to be a relative success, beating the Juul investment is not a high bar. NJOY is also so small relative to the cigarette business (which makes up around 88% of Altria’s top line) that it will, at best, offset only a portion of the ongoing decline over the near term.

Don’t get distracted by the dividend yield

It is entirely possible that Altria will manage to find a replacement business for its declining cigarette operation and sustain its massive dividend. But at this point, the path to that outcome is cloudy at best. Given the ongoing volume declines in cigarettes and multiple failed attempts in developing new business ventures, investors need to tread very carefully when looking at Altria today. That 9% dividend yield comes with a huge amount of risk.

 

728x90x4

Source link

Related Topics:
Continue Reading

Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

6 days ago

 on

November 6, 2024

By

 

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

The Canadian Press. All rights reserved.

Source link

Continue Reading

Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

4 weeks ago

 on

October 16, 2024

By

 

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

Source link

Continue Reading

Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

1 month ago

 on

October 11, 2024

By

 

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

Source link

Continue Reading

Trending