Buy and Hold This Top S&P 500 Dividend Stock Down 14%
In the current market, Altria Group (MO) remains an attractive option for income-focused investors. Despite challenges facing the stock market, Altria stands out as a solid buy-and-hold opportunity, particularly given its strong dividend yield and relatively low valuation.
Altria: A Defensive Income Stock
The S&P 500 index has surged approximately 16% this year, positioning itself close to historical highs. However, the market appears increasingly competitive, driven largely by major technology firms like Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta, and Tesla—often referred to as the “Magnificent Seven.” These companies dominate the index but may overshadow other undervalued stocks.
Altria’s Market Position
Currently, Altria’s stock is trading around 14% below its all-time high. The company is a major player in the domestic tobacco market, primarily known for its Marlboro brand. Despite a decline in smoking rates, Altria has managed to sustain growth due to strategic initiatives.
- Year Established: Altria was formerly known as Philip Morris before spinning off its international division in 2008.
- Market Cap: Currently valued at approximately $97 billion.
- Current Price: $57.99 with a day’s range of $57.92 to $58.45.
- Dividend Yield: Offers an impressive yield of 7.1%, which is higher than the 10-year Treasury yield of 4.1%.
Financial Performance and Strategy
From 2019 to 2024, Altria’s shipments of smokeable products have significantly decreased, but revenue has grown at a compound annual growth rate (CAGR) of 0.7%. This growth can be attributed to pricing strategies, cost reduction, and share buybacks.
Key statistics from Altria’s financials include:
- Adjusted EPS Growth (2024-2027): Expected CAGR of 4%
- Current Gross Margin: 71.98%
- Free Cash Flow Usage: 75% spent on dividends in the last 12 months
Altria is also making innovative strides with the acquisition of the e-cigarette maker Njoy for $2.8 billion. This move is anticipated to boost earnings by 2026. Additionally, the company’s goal is to generate $5 billion in smoke-free revenue by 2028.
Valuation and Investment Potential
Trading at about 11 times next year’s expected adjusted earnings, Altria appears undervalued. Even with the volatility in the market, Altria’s low price-to-earnings ratio and high dividend yield position it as an appealing choice for defensive investors.
As the broader market experiences fluctuations, Altria remains a reliable dividend stock within the S&P 500. Its strategic shifts toward smoke-free products indicate a commitment to adapting to market demands while maintaining robust returns for shareholders.
In summary, while Altria may not rival the gains of high-growth technology stocks, it offers a dependable income stream that makes it a candidate worth considering for long-term dividend investors.
