Altria Group, Inc. (MO): Is It the Best Dividend Aristocrat To Buy Now?

We recently compiled a list of the Dividend Aristocrats Ranked By Yield: Top 10. In this article, we are going to take a look at where Altria Group, Inc. (NYSE:MO) stands against the other dividend aristocrats.

Investors have always put income at the top of their list. And when it comes to raking in money, you can’t beat dividend stocks. Research by S&P Dow Jones Indices has demonstrated that over the long haul, dividend-paying companies have outperformed non-dividend companies and the broader market on a risk-adjusted basis. Though investing in high dividend yields is not advised by analysts, recent research indicates that dividend yield is a risk factor that pays off, historically earnings higher returns than a market-cap-weighted benchmark. When paired with other factors like volatility, quality, momentum, size, and value, dividend yield strategies can potentially tap into systematic sources of returns.

Dividend yield and dividend growth have always been a hot topic among investors. But little did they realize that dividend yield is a key piece of the puzzle when it comes to dividend growth. When it comes to the Dividend Aristocrats Index, the knack for increasing dividends for 25 straight years doesn’t mean sacrificing yield. The index has consistently outshone its benchmark by delivering higher yields, typically between 2% and 2.9% over the past 26 years ending 2023. On average, the index’s yield was 2.5%, compared to the market’s 1.8%. To read more about high dividend stocks, have a look at Best Dividend Stocks Yielding at Least 7% According to Hedge Funds.

In addition to offering solid yields, dividend aristocrats are also less volatile than other asset classes. According to a report by S&P Dow Jones Indices, the Dividend Aristocrats Index has outpaced the broader market over the long haul with less volatility, which is indicated by its higher risk-adjusted returns. The index’s ability to provide downside protection is evident in its upside and downside capture ratio. These stocks have outperformed the market in 69.34% of down months and 43.61% of up months. Moreover, the Dividend Aristocrats Index has experienced lower drawdowns compared to the benchmark index. The report further mentioned that the index delivered an average excess return of 1.05% during down months compared to the broad-based benchmark.

Data from 2023 highlights how eager companies are to boost their dividends. This isn't just a knee-jerk move to lure investors; it's backed by robust corporate balance sheets, with companies raking in more cash flows than ever before. According to Janus Henderson, corporate cash flow remained strong in 2023 across most sectors, giving companies ample resources for dividends and share buybacks. As a result, global dividend growth saw a 5% increase for the year, aligning with the long-term trend. The firm also gave a positive outlook for dividends in 2024. It said that dividends appear solidly supported this year, although one-time special dividends are expected to decrease from the record levels observed over the past three years. The firm’s forecast predicts $1.72 trillion in dividends for 2024, marking a 3.9% increase on a headline basis, which translates to a 5% growth rate on a headline basis.

There are many dividend aristocrats that offer solid yields to shareholders. In this article, we will take a look at some of the best dividend aristocrat stocks with high yields.

Our Methodology:

For this list, we looked at a group of 67 dividend aristocrat companies, which are known for raising dividends for 25 years or more. From this list, we chose 10 stocks with the highest dividend yields as of June 25 and arranged them in order from lowest to highest yield. We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 920 funds as of Q1 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

A close-up of an assembly line with a blend of tobacco products.

Altria Group, Inc. (NYSE:MO)

Dividend Yield as of June 25: 8.42%

Altria Group, Inc. (NYSE:MO) is a Virginia-based manufacturing company that specializes in the production of tobacco, cigarettes, and other nicotine products. Recently, the FDA approved the marketing of four of the company's e-cigarette products after a thorough scientific review. This move is notable as it is the first time the agency has granted marketing orders for non-tobacco flavored vapor products through the premarket tobacco application process. The FDA stated that evidence from Altria showed these menthol-flavored products offer a significant benefit for adult smokers, encouraging complete switching from traditional cigarettes, which outweighs the risks, including the appeal to youth.

The tobacco habit among people has given the industry a golden ticket to steady profits. Despite the long-term drop in smoking rates in the US, the industry's pricing power has kept the cash rolling in for years. Altria Group, Inc. (NYSE:MO) owns Marlboro, the top cigarette brand in the nation, commanding about 42% of the total retail market and a dominating 60% share of the premium segment. The company's overall revenue for the first quarter of 2024 came in at $4.7 billion, which slightly fell by 0.9% from the same period last year.

Andvari Associates has given strong outlook for Altria Group, Inc. (NYSE:MO) in its first quarter 2024 investor letter. Here is what the firm has to say:

“Our second example of a high-yielding security is the stock of Altria Group, Inc. (NYSE:MO). Before we get into the details of why we started a position in Altria, a brief history is in order. The company was formerly known as Philip Morris before rebranding to Altria in 2003. Cynically, the rebranding was to minimize the negative attention from its tobacco business. However, the company also owned Kraft Foods and Miller Brewing, so it was logical to reflect its status as a conglomerate. Since rebranding, Altria has slowly “de-conglomerated”. It spun out Kraft in 2007. It spun out Philip Morris International in 2008. In 2021, it sold its Ste. Michelle Wine Estates business. Finally, last month Altria announced it is selling part of its 10% ownership in Anheuser-Busch InBev (BUD)

Andvari has followed Altria since we began our investment career. Profitability is extraordinary and the business requires minimal capital expenditures. Despite the volume of cigarettes having steadily declined—a great thing for our population health—Altria has still managed to grow revenues and profits with regular price increases…” (Click here to read the full text)

Altria Group, Inc. (NYSE:MO) currently offers a quarterly dividend of $0.98 per share. The company holds a 54-year streak of consistent dividend growth. With a dividend yield of 8.42% as of June 25, MO ranks first on our list of the best dividend aristocrat stocks.

Insider Monkey’s database of Q1 2024 indicated that 38 hedge funds owned stakes in Altria Group, Inc. (NYSE:MO), compared with 42 in the previous quarter. These stakes are collectively valued at over $823.3 million. Among these hedge funds, Harris Associates was the company’s leading stakeholder in Q1.

Overall MO ranks 1st on our list of the best dividend aristocrats ranked by yield. You can visit Dividend Aristocrats Ranked By Yield: Top 10 to see the other dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of MO as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than MO but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.