Summary
- Quarterly payout raised to $0.84 per share.
- Yield well over 7% now, much higher than fixed income.
- Now it's time to talk about business.
Last week, investors in cigarette giant Altria (MO) were rewarded nicely when the company announced a fifty year dividend increase milestone. The quarterly payout was raised by 5%, continuing strong dividend growth in line with adjusted earnings increases, and gives the name a new annual yield that's well above 7.00%. Today, I'll break down the news and what investors should watch for moving forward.
For those that read my dividend preview article, you know that the new $0.84 per share quarterly rate is exactly as I expected. With the target of 80% of adjusted EPS, and guidance for a 4-7% increase in that figure this year, a payout increase of 5% seemed likely. In the chart below, you can see Altria's dividend history since the financial crisis. The new rate is shown as "Q4 2019" because it will be paid out in October 2019, the final quarter of this year.
(Source: Altria dividend history, seen here)
Investors in the cigarette giant have always been happy with the company's dividend, and a 5% raise is nothing to shy away from. I did argue recently, however, that a more prudent strategy might have been a smaller raise with more cash being funneled towards the buyback, but it appears that the board wasn't going with that idea at the moment. We'll see in the next few months how aggressive management is in repurchasing shares now that they are back down in the mid $40s.
This stock has always had a nice dividend yield, but there haven't been too many times in recent years where it has been above 7.00% on an annual basis. At the same time, fixed income rates around the globe are dropping, meaning Altria is a much better generator of income. In the chart below, I've shown how the dividend yield's spread above the 30-Year US treasury has widened, with last week's raise pushing it well above 500 basis points.
