Altria’s Revenue Falls Despite Raising Prices; Could Dividend be in Jeopardy?

July 27, 2016 by

altria-mo-logoTobacco giant Altria Group Inc (NYSE:MO) on Wednesday posted better-than-expected earnings results, although its tepid outlook wasn’t enough to give the shares much of a boost.

Mixed Q2 Results, Forecast

The Richmond, VA-based company reported second quarter net income of $0.81 per share, beating analyst estimates of $0.80. Revenue fell 1.4% from last year to $4.88 billion, missing analyst estimates of $5.01 billion.

Looking ahead, MO slightly raised its full-year earnings forecast to a range of $3.01 to 3.07 per share, up from $3.00 to 3.05. Analyst are currently looking for $3.05 per share for the year.

Altria has combatted lower smoking (and smokeless) rates by raising prices on its cigarette brands, which include Marlboro, Copenhagen, Skoal, and Black & Mild. It remains to be seen how much longer the company can simply pass costs onto consumers.

MO-2016-07-27

Dividend Not Necessarily Safe

Yield-starved investors seeking income in names like Altria may want to tread lightly here. MO currently trades at more than 22x forward earnings, and sports a dividend payout ratio of 75%. Its current yield of just 3.33% is also at the lowest level we’ve seen in more than 15 years.

Long story short, MO is at a very unattractive levels right now, given its historically high valuation, low yield, high payout ratio, and lack of growth prospects. This latest earnings report only reinforces that view.

Altria shares rose $0.46 (+0.68%) to $68.39 in premarket trading Wednesday. The stock has gained 16.7% year-to-date as investors have chased yield throughout the markets in any form they can find it.

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