Sunday, July 22, 2012

Altria (MO) 2012 Review

Altria (MO) is the holding company for Phillip Morris USA, John Middleton (machine made cigars), UST (moist smokeless tobacco) and Phillip Morris Capital Corporation.

As a result of the spin offs of Kraft Foods and Phillip Morris International, breaking out past return on equity numbers as well as dividend and earnings growth rates directly attributable to this entity is beyond our pay grade; plus we have yet to find any other analyst that has undertaken the task.

Looking forward, the primary attraction that MO holds for us is its dividend yield (5.2%) as well as its very high cash flow per share which should allow the company to increase its dividend annually as well as engage in a share buy back program.

That said, the company should be able to grow its earnings in the future as a result of:

(1) major emphasis on new product line extensions into smokeless tobacco and cigars,

(2) its joint effort with Okona to develop noncombustible nicotine products,

(3) increased efficiencies gained from [a] the consolidation of UST into MO operations and [b] an aggressive program to rationalization its manufacturing facilities,

(4) an aggressive stock buyback program.


(1) the recent large increase in the Federal excise tax on cigarettes,

(2) increased restricts on smoking,

(3) the FDA proposed ban on menthol.

MO is rated B+ by Value Line, has debt to equity ratio of 79% and its stock yields 5.2%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2009
MO 5.2% 7% 78% 3
IND 5.2 15 65 NA

Debt/Equity ROE EPS Down Since 2008 Net Margin Value Line Rating
MO 79% 61% 0 18% B+
IND 64 48 NA 15 NA


Note: MO stock made great progress off its March 2009 low, quickly surpassing the downtrend off its January 2008 high (red line) and the November 2008 trading high (green line). Long term, the stock is in an uptrend (straight blue lines); intermediate term, it is also in an uptrend (purple lines). The wiggly blue line is on balance volume. The High Yield Portfolio owns a full position in MO. The upper boundary of MO Buy Value Range is $15; the lower boundary of its Sell Half Range is $41.

Steve Cook received his education in investments from Harvard, where he earned an MBA, New York University, where he did post graduate work in economics and financial analysis and the CFA Institute, where he earned the Chartered Financial Analysts designation in 1973. His 40 years of investment experience includes institutional portfolio management at Scudder, Stevens and Clark and Bear Stearns. Steve's goal at Strategic Stock Investments is to help other investors build wealth and benefit from the investing lessons he learned the hard way.