Altria (NYSE: MO) makes cigarettes and smoke-free tobacco merchandise. Its manufacturers embrace Marlboro, Skoal and IQOS.
Regardless of cigarette smoking reaching a brand new low in 2022, Altria continues to generate lots of money circulation and pays a beneficiant 8% dividend yield. Whereas the corporate makes an attempt to make its merchandise safer, can we are saying the identical about its sturdy dividend?
Let’s have a look.
Free money circulation has been pretty regular over the previous few years, although it dipped in 2022. Regardless that it was a small lower, the Security Web system doesn’t wish to see free money circulation heading within the incorrect route.
This 12 months, free money circulation is forecast to spike 10%. That’s good to see, but it surely doesn’t erase the decline from final 12 months.
The payout ratio is just a little excessive.
Final 12 months, Altria paid shareholders 82% of free money circulation in dividends. This 12 months, with increased money circulation anticipated, the payout ratio is projected to dip to 78%. Although that’s nonetheless above my consolation zone.
For many firms, I need to see a payout ratio of 75% or decrease. That offers me confidence that even when an organization stumbles and free money circulation drops, it could preserve its dividend. Above that degree, I get involved.
Altria has raised its dividend yearly since 2010. The present quarterly dividend of $0.94 comes out to a yield of 8%.
It did reduce the dividend in 2007, 2008 and 2009, however Security Web has a 10-year statute of limitations on dividend cuts. So the truth that it has raised its dividend yearly for the final 13 years is constructive.
I discussed that Altria will get dinged for the decrease free money circulation final 12 months. It additionally will get penalized for the excessive payout ratio.
As of proper now, the dividend doesn’t look to be in jeopardy. But when free money circulation doesn’t materialize the way in which Wall Avenue expects, that huge dividend may get smoked.
Dividend Security Score: C
In case you have a inventory whose dividend security you’d like me to investigate, go away the ticker image within the comments part.
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