ALTRIA GROUP INC (NYSE:MO): A High-Yield Dividend Stock with Strong Profitability and Financial Health

Dividend investors often look for stocks that provide steady payouts, maintainable yields, and solid financial health to secure long-term income stability. One method to find such stocks is by applying a structured screening process, like the Best Dividend Stocks screen, which selects companies with a high ChartMill Dividend Rating (≥7), good profitability (Profitability Rating ≥5), and reasonable financial health (Health Rating ≥5). These standards help steer clear of high-yield traps, stocks with unmaintainable payouts, while concentrating on businesses able to sustain and increase dividends over time.

ALTRIA GROUP INC (NYSE:MO) appears as a candidate worth reviewing under this method. The company, recognized for its tobacco products, performs well on key dividend measures while showing solid profitability and acceptable financial health. Below, we explain why MO fits the dividend investment approach.

Dividend Strength: High Yield with Consistency

MO’s dividend profile is notable in several aspects:

• High Yield: At 6.42%, MO’s dividend yield is much higher than both the industry average (3.73%) and the S&P 500’s 2.40%. This makes it attractive for income-focused investors.
• History of Payments: The company has paid dividends for at least 10 straight years without cuts, showing dependability. However, its yearly dividend growth rate of 4.03% is moderate, reflecting a cautious but steady approach.
• Payout Ratio Note: MO’s payout ratio of 78.52% is elevated, meaning most earnings go toward dividends. While this raises some concerns about sustainability, the company’s strong profitability (discussed below) helps reduce near-term risks.

For dividend investors, these elements are vital. A high yield paired with a long payment history lowers the chance of sudden cuts, while the payout ratio—though high—is backed by steady earnings.

Profitability: High Margins and Returns

MO’s ChartMill Profitability Rating of 9/10 highlights its ability to produce earnings, a crucial factor in maintaining dividends:

• Strong Margins: The company has a 51.20% operating margin and 37.13% profit margin, better than 100% of its tobacco industry peers. High margins offer protection against economic downturns.
• Effective Capital Use: MO’s Return on Invested Capital (ROIC) of 37.10% is much higher than its cost of capital, showing efficient use of shareholder funds.
• Stable Cash Flow: Positive operating cash flow over the past five years supports its ability to keep paying dividends.

Profitability is key for dividend sustainability, as it ensures the company can fund payouts without harming growth or financial stability.

Financial Health: Balanced but with Some Weaknesses

MO’s ChartMill Health Rating of 5/10 shows a mix of strengths and weaknesses:

• Solvency Positives: The company’s Altman-Z score of 5.17 suggests low bankruptcy risk, and its debt-to-FCF ratio of 2.83 means it could repay debt in under three years using free cash flow—a good sign.
• Liquidity Issues: MO’s current ratio of 0.39 and quick ratio of 0.24 are low, indicating potential short-term liquidity challenges. However, its strong cash generation helps balance this risk.

While the liquidity measures are weak, MO’s overall financial health is adequate for dividend investors, given its profitability and solvency.

Valuation: Reasonable Metrics

MO trades at a P/E of 12.02 and a forward P/E of 11.26, below both the industry and S&P 500 averages. This suggests the stock is fairly priced, especially for investors focused on yield over growth.

Conclusion

ALTRIA GROUP INC (NYSE:MO) offers a strong case for dividend investors, providing a high yield, dependable payment history, and solid profitability. While the high payout ratio and weak liquidity metrics need attention, the company’s margins and solvency offer support. For those searching for income-generating stocks, MO’s mix of yield and financial strength makes it a candidate to consider.

For more dividend stock ideas, check the Best Dividend Stocks screen, which identifies other stocks meeting similar criteria.

Disclaimer: This analysis is not investment advice. Always conduct your own research or consult a financial advisor before making investment decisions.