Altria Just Hiked Its Dividend and Is Firing On All Cylinders, But Should You Buy It Now?

Over time, stock prices rise and fall, but predictably, most people will be extremely bearish near the bottoms and largely bullish near the tops. Only four months ago, many investors on social media predicted the demise of Altria Group Inc MO as it once again traded below $40 per share. Altria had traded between $35.50 and $43.00 for many months.

But Altria broke out of its trading range in May and has been climbing ever since. Following last week's dividend increase announcement, it recently closed at $52.44.

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Those who purchased during the toughest times in 2023 have been handsomely rewarded with nearly 40% appreciation and a double-digit dividend yield. Those who forecast the end of times for Altria and didn't buy it may have wished they had.

But will investors get a second chance to buy Altria with a dividend yield that's an income collector's dream? Take a look:

Altria is a Richmond, VA-based tobacco company that, through its subsidiaries, manufactures and sells oral and smokable tobacco products throughout the U.S. Some of its products include Marlboro cigarettes, Black & Mild cigars and pipe tobacco and Copenhagen, Skoal and other smokeless tobacco and snus products. More recently, it developed on! nicotine pouches and acquired NJOY Holdings, Inc. to add the NJOY ACE brand of e-vapor products to its inventory of smokeless tobacco products. As of March 2024, Altria owned 10% of Anheuser-Busch InBev SA BUD, the Budweiser beer manufacturer, but planned to sell off about 35 million of its 197 million shares.

After decades of lawsuits and a declining population of smokers which dropped the share price from over $70 to the mid $30s, Altria decided to expand its product line into non-smokeable tobacco products. Many health care professionals still caution users that these other products can be harmful to health, but many applaud Altria's attempts to offer alternatives to smoking for adult customers.

Big News

On Aug. 22, Altria announced that its Board of Directors had approved a 4.1% increase to the quarterly dividend from $0.98 to $1.02 per share. The new dividend is payable to shareholders of record as of Sept. 16, with payment on October 10. This was the 55th consecutive year of dividend increases. The yield is now 7.78% as of its recent close at $52.44. 

Over the past five years, Altria has raised its dividend six times with a total dividend growth of 27.5%. The dividend has tripled since the 2008 spinoff of Philip Morris International Inc. PM. Altria targets its dividend payout ratio at about 80% of adjusted earnings per share (EPS). 

One factor that has helped Altria's share price this year is the improvement in the share price of Anheuser-Busch following its marketing fiasco of Bud Light in 2023. Another factor is the reduction of 3.60% of outstanding shares this year from Altria's share repurchase program.

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One reason Altria can be important in a balanced portfolio is that, as a defensive consumer stock, it provides a haven during volatile market periods. Of course, another reason to own it is for the income.

However, the question now is whether the present share price is sustainable. Technically, in the short term, Altria seems very overbought. The weekly 14-period Relative Strength Index (RSI) is now above 77 (70 or more is overbought) and the Full Stochastic is at 95.93 (80 or higher is overbought). Volume has recently declined on the up days as the rally has matured. The price has risen far from its 50-day moving average at $42.14 and the 200-day moving average at $39.30.

Of course, stocks can move higher even when overbought. The RSI moved into overbought territory in early July when the share price was $47.80. Overbought simply means that the stock is above its fair value. Therefore, the risk of a decline now exceeds the potential for further appreciation.

Since 2021, there have been two other times when the RSI touched or was above 70. In March 2021, the RSI reached the high 70s, and the stock peaked at $40.37. Within a month, the share price fell to $34.67. However, it rebounded, and in May 2022, the RSI again touched 71 as the price peaked at $47.04. What followed was an even greater sell-off to $34.50 by the end of June.

Therefore, history suggests a pullback could develop, perhaps as much as 10% to $47 or $48. However, the future continues to look bright for Altria, and if an investor purchases shares that are a few dollars too high, the dividend payments can compensate for that in just a few quarters. Most investors buy Altria for the income rather than the potential appreciation. However, younger investors may want to reinvest dividends to acquire more shares rather than collect the income.

The most recent analyst coverage for Altria was on Aug. 14, when Barclays analyst Gaurav Jain maintained it at Underweight and raised the price target from $37 to $44. However, the price is now well above the analyst's price target.

Some investors avoid Altria because of the harmful effects of smoking and other tobacco forms. Owning this stock is not for everyone, but for those who want to own it, the three-year total return of 30.71% makes a compelling argument. Dollar-cost averaging into one's total position to reduce the risk of paying too much can also be a prudent way to go.

Better Yields Than Altria?

The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through dividend stocks… Certain private market real estate investments are giving retail investors the opportunity to capitalize on these high-yield opportunities and Benzinga has identified some of the most attractive options for you to consider. 

For example, the Jeff Bezos-backed investment platform just launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. The best part? Unlike other private credit funds, this one has a minimum investment of only $100. 

Don't miss out on this opportunity to take advantage of high-yield investments while rates are high. Check out Benzinga's favorite high-yield offerings.