For investors looking for a dependable source of passive income, a methodical selection process is important. One useful tactic is to look for companies that provide a good dividend now and also have the fundamental financial soundness to maintain and possibly increase those payments in the future. This method focuses on quality and longevity instead of seeking the absolute highest yield, which can sometimes indicate problems in a business. A practical technique is to use a multi-factor filter that finds stocks with good dividend traits, supported by acceptable earnings and firm financial condition.
ALTRIA GROUP INC (NYSE:MO), the tobacco company known for brands such as Marlboro and Copenhagen, recently appeared as a result from this "Best Dividend" filter. The filter is set to find stocks with a high ChartMill Dividend Rating (7 or higher) while also needing minimum grades for Profitability and Financial Health. This pairing seeks to find companies where the dividend is supported by a sound business operation. Altria's presence on this list justifies further examination to understand how its basic financials match the aims of a dividend-oriented investor.
Dividend Attractiveness and Longevity
The main draw for a dividend investor is, naturally, the yield and its consistency. At first glance, Altria performs very well on the first aspect.
- Good Yield: The company presently has a notable dividend yield of 6.48%. This is much higher than both the industry average of about 3.25% and the wider S&P 500 average, setting it apart for income.
- Consistent History: Altria has a very good dividend record, having paid and, importantly, not reduced its dividend for over ten years. This extended commitment gives investors assurance about management's focus on giving capital back to shareholders.
- Increase Record: The dividend has increased at a small but consistent yearly rate of around 4.09% over the last five years, adding to actual income growth for investors who hold long-term.
Yet, a lasting dividend needs more than a high yield and a long record; it must be something the business can afford. This is where a more detailed look at the payout ratio is important. The filter's requirement for a high Dividend Rating includes this check, and Altria shows a detailed situation. The company's payout ratio is over 100% of its net income, which is a concern as it means the dividend is not completely paid for by current profits. This shows why the filter's other requirements for profitability and health are valuable—they help find companies that might have other financial qualities supporting the payout even when the ratio based on earnings seems high.
Fundamental Earnings and Financial Condition
The filter's rules require acceptable grades in profitability and financial health for a main purpose: a company must be fundamentally sound to keep its dividend during different economic periods. Altria's report shows a business with very high earnings but some definite issues in short-term financial flexibility.
- Very High Profitability: Altria gets a top ChartMill Profitability Rating of 9. Main qualities include:
- High Margins: The company works with very good profit (29.75%) and operating (52.06%) margins, doing better than all others in its industry. This efficient activity produces a lot of cash.
- Good Returns: Its Return on Invested Capital (ROIC) of 36.66% is excellent and also much higher than its cost of capital, meaning it is building real value for shareholders.
This exceptional profitability is the key balance to the high payout ratio. The large cash flow from its high-margin business gives an important cushion and a way to fund the dividend beyond just reported net income.
- Acceptable Financial Health with a Note: Altria receives a ChartMill Health Rating of 5, meeting the filter's "acceptable" level. The review shows a mix:
- Stability is Good: The company has a sound Altman-Z score, showing no immediate risk of failure, and an acceptable Debt to Free Cash Flow ratio, indicating it could reduce debt in a practical period.
- Short-term Flexibility is an Issue: The principal weakness is in its liquidity ratios. Both the Current Ratio (0.65) and Quick Ratio (0.53) are low, hinting at possible trouble in meeting immediate bills without using outside cash flows or credit. This is typical of established, cash-return companies but is still something for investors to watch.
Price and Expansion Background
For a dividend investor, the price makes sure the income is not bought at a too high cost, while expansion possibilities indicate the chance for future dividend raises.
- Fair Price: Altria seems fairly valued. Its Price-to-Earnings ratio of 12.36 is lower than most of its industry and the general market. Also, its forward P/E and Enterprise Value/EBITDA ratios point to a valuation similar to or below industry others. This means the high yield is not just because of a very low stock price.
- Small Expansion Outlook: As anticipated for an established company in a shrinking industry, expansion is not Altria's strength. It gets a low Growth Rating of 3, with revenues having decreased a little in recent years. Future projections for both revenue and earnings expansion are small. This highlights the investment idea: Altria is mainly a source for high, steady income from a well-set business, not for major price growth or large dividend increases.
Summary
Altria Group makes a strong argument for a specific kind of dividend investor. It does very well in the main objective of producing high current income, backed by an excellent profitability record that helps address worries about its high payout ratio. Its price is not high, and its long dividend history builds trust. The filter method effectively found a company where the good dividend is supported by real business quality, especially in cash production.
However, the review also shows the compromises. Investors must acknowledge the company's limited expansion prospects, the ongoing challenges for the tobacco industry, and the somewhat weak short-term financial position. Altria is not a universal dividend stock, but for an income-focused collection seeking a high yield from a company with demonstrated cash-producing capacity, it deserves thoughtful review based on the fundamental points emphasized by the filter.
Find Other Dividend Options: The "Best Dividend" filter that found Altria can produce many other investment possibilities. You can change the settings and see all present outcomes by going to the set stock filter page.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer or request to buy or sell any securities. The review uses present data and grades, which can change. Investors should do their own complete research and think about their personal money situation and risk comfort before making any investment choices.
