Altria Group: Sharp Drop in Stock Price and Dividend Yield

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Altria Group, the maker of Marlboro cigarettes, experienced a significant selloff on Thursday due to a slight earnings miss and a reduction in its 2023 financial guidance. This caused Altria stock (ticker: MO) to drop over 8%, but it has since rebounded by 1.7% on Friday, reaching $39.90 per share. Despite the recovery, the stock’s dividend yield has reached a noteworthy 9.8%.

In August, Altria increased its quarterly dividend by 4%, leading to its status as the company with the highest dividend yield in the S&P 500 even before the recent decline. Walgreens Boots Alliance (WBA) holds second place with a dividend yield of 8.9%.

During the third quarter, Altria earned $1.28 per share, which fell slightly below the consensus estimate by one penny. Additionally, the company adjusted its 2023 earnings-per-share guidance to a range of $4.91 to $4.98, reflecting a 1.5% to 3% growth from the 2022 base. This revision caused concern among Wall Street analysts, as it fell short of Altria’s target of mid-single digit earnings-per-share growth through 2028.

Analysts were particularly worried about the sharp 10% drop in Altria’s cigarette volume during the third quarter, which exceeded the roughly 5% historical decline. However, Altria has managed to boost its profits despite declining volumes by increasing cigarette prices.

Goldman Sachs analyst Bonnie Herzog expressed her thoughts on Altria’s third-quarter results, stating that while they were not overly impressive, they were not severe enough to justify the sharp selloff in the stock.

Overall, Altria Group faces challenges in meeting its earnings-per-share growth targets, but its high dividend yield continues to attract investors.

Altria Faces Uncertainty as Cigarette Volume Declines

As the cigarette volume of Altria continues to decline, there is growing uncertainty about the company’s ability to offset this with pricing. This raises concerns about potentially limited profit and earnings-per-share upside.

Mixed Analyst Opinions

Analysts have differing opinions on Altria’s prospects.

  • Herzog, a bullish analyst, maintains a Buy rating on the stock and has set a price target of $47. However, she believes that until investors gain greater clarity on the volume issue, the stock may remain rangebound. She highlights that investors do have the benefit of receiving dividends while waiting for developments.

  • On the other hand, Cowen analyst Vivien Azer has a less positive outlook. Azer believes that any potential recovery in industry volumes would only result in a slight improvement to a decline rate of 6%-7%. This decline is primarily driven by consumers shifting to vapor and modern oral tobacco. As a result, Azer has reduced her price target on Altria stock to $42 from $47, with a Market Perform rating. She also notes that this is the second consecutive quarterly guidance cut.

Altria’s Strategy

Altria has been striving to enhance the profitability of its core cigarette business by focusing on pricing, particularly with its industry-leading brand Marlboro, which holds over 40% of the market share. Additionally, the company has been expanding its smoke-free businesses.

Altria takes its dividend policy seriously and has consistently raised it for over 50 years. The company aims to pay out approximately 80% of its earnings as dividends and intends to increase the dividend at a mid-single annual rate. The most recent dividend increase was 4%.

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