Altria: Dividend Now Even Safer With Non-Core Disposals (Preview)

Company Update (MO US) (Buy)

Summary

• Altria stock currently offers a 7.3% Dividend Yield, from an annual dividend of $3.44, which is likely to be raised again in August.

• Altria's dividend is easily affordable on current earnings, with a Payout Ratio that is just under the 80% management target.

• We believe EPS and the dividend will both grow at mid-single-digits; datapoints since Q1 results show U.S. cigarette market is stable.

• The $1.2bn sale of the Wine business will fund more buybacks, and we believe signals an even bigger sale of the $11.8bm ABI stake.

• With shares at $47.40, we expect an exit price of $64 and a total return of 65% by 2024; selling the ABI stake can add another 12%

Introduction

In this article we review our investment case for Altria, including the prospects for its dividend, both of which we believe have been strengthened by the $1.2bn sale of its wine business announced on Friday.

Altria's share price has been volatile since we upgraded our rating to Buy in February 2020. The stock is now back to the…