Altria Group Inc (MO)

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It Might Not Be A Great Idea To Buy Altria Group, Inc. (MO) For Its Next Dividend
By: Simply Wall St | June 9, 2023

Altria Group, Inc. (NYSE:MO) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Altria Group's shares before the 14th of June in order to receive the dividend, which the company will pay on the 10th of July.

The company's next dividend payment will be US$0.94 per share, on the back of last year when the company paid a total of US$3.76 to shareholders. Based on the last year's worth of payments, Altria Group has a trailing yield of 8.3% on the current stock price of $45.36. If you buy this business for its dividend, you should have an idea of whether Altria Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Altria Group paid out 120% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (74%) of its free cash flow in the past year, which is within an average range for most companies.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Altria Group fortunately did generate enough cash to fund its dividend. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned...

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