Altria Group Inc (MO)

[DiscoverGold]

Altria: 8% Dividend Backed By Strong Cash Flows
By: Mark Roussin | August 5, 2020

Fresh off a BIG week of earnings from the S&P 500 largest positions, we saw sizable moves from the likes of Apple (AAPL), Facebook (FB), and Amazon (AMZN). AAPL and FB have seen their stock price rise 17% and 10%, respectively, the past 5 trading days alone.

Prior to earnings from mega-tech, we did see some transition to more value plays, but it was short lived, which has been a common theme. However, things are really starting to look frothy and I cannot help but take a break from those leaders and look more at value.

Being a dividend investor, I cannot help but love shares of Altria Group (MO). They have been a long time favorite of many income investors for decades, but they have certainly taken it on the chin the past few years after some questionable timing of a few investments.

While the S&P 500 hovers slightly above even for the year, shares of Altria are down 18%. The stock has just not been able to find its footing just yet, but I believe the opportunity is great if you can add shares at current levels.

Poorly Timed Investments

Altria has really been in the dog house since their failed acquisitions of Juul Labs and Cronos, which both took place in December 2018 and March 2019, respectively.

The first investment the company made was in Juul Labs, which was the leading producer of e-cigarettes, which was at a time e-cigarettes were sweeping the US. The company invested $12.8 billion in exchange for a 35% stake, valuing the company at $38 billion.

Juul was in the spotlight for much of 2019 as many consumers of e-cigarettes were falling ill, and being the leader in the space, they were unfairly punished. A black cloud was put over the company for the products and how people viewed their market tactics toward the younger generation. Some illness even lead to numerous deaths.

However, after extensive research, it was found that the vitamin E oil was a commonly linked issue in all the victims and patients of the lung issues that were taken place. Juul does not use vitamin E oil in their products.

The downturn in the company led to a write down of $4.5 billion in Q4 2019, followed by another write down at the start of this year of $4.1 billion. The company now values their investment in Juul at $4.2 Billion, a far cry from the $12.8 billion they paid a year earlier.

The next investment came by way of Canadian marijuana producer Cronos Group (OTC:CRON). The company invested $1.8 billion for a 45% stake in the company. YTD shares of CRON are down 11.5%. This investment is yet to pay off as well.

I understand what the company was looking for, but the timing could not of been worse. In a period of continued decline in cigarette volumes, the tobacco giant was looking for a boost and a way to diversify their portfolio away from its reliance on cigarettes.

How The Tide Could Turn For Altria

Over the last several years, Altria has continued to diversify their portfolio as they understand their legacy cigarette business is declining in popularity, even with the pricing power they have. The company has made several investments to diversify the portfolio, even though some are not working out as quickly or as well as they hoped, thus far.

Here is a look at the breakdown of brands within the Altria portfolio.



* * *

Read Full Story »»»

DiscoverGold