January 14, 2019. The market has been rising and everyone is celebrating. We are off and running.
Before you get too positive, keep in mind that it is typical to re-test the LOWS after a sharp decline in the markets. Right now, it is more likely that we will see another decline……heading to the recent lows. So remember this before you start getting too comfortable. AND you should NOT be loading up on stocks.
Also, the re-test could pass OR fail. Yes it can fail, and we could see even further declines beyond the recent low. Our crystal ball is still broken and we do not know the future. If you buy or trade stocks, be cautious before you get too bullish. (The markets are DOWN THIS MORNING.)
Our primary focus here is INCOME. So we have remained fully invested in all Core Portfolio dividend paying positions over the last three months: individual bonds, REITs, BDCs, and preferred stocks.
We have never invested in Altria, best known for their cancer causing Marlboro cigs. It was at $77.00 back in 2017, and has tanked down to $49.00 on Friday. So why would we even consider looking at this dud.
Well, marijuana for one….everyone wants to invest in this category.
Altria has purchased Companies in the weed AND e-cig markets.
Altria pays 6.5% but the technicals are still terrible. This Company is now on our radar, and if things change-for the positive- in the next few weeks, months, or maybe never, we will make a decision on a possible purchase.
Cheap Dividend Stock #1: Altria (MO)
Cigarette maker Altria is the second-largest tobacco company in the world and the largest in the U.S. Its Marlboro brand is by far the most dominant cigarette on the market, with a whopping 40% market share. Nobody else is even close.
What if things go badly and the market turns south? Altria has a relatively unblemished record of solid stock performance in good markets and bad. In a bad market and economy people still drink and smoke, if not more so. This is one of the few companies that continues to thrive in bad times and bad markets. And there is reason to believe the stock will be even more resilient this time around.
Consider this: Cigarette smoking in this country has nearly halved since 2009. But in that time period Altria has grown earnings by an average of 9%, and $10,000 invested in the stock 10 years ago would be worth about $56,000 today!
After an uncharacteristic bad year, down almost 30% in 2018, the stock currently sells near a five-year low at 49 per share, and pays a massive 6.57% yield. Bear in mind this is a stock, even after the recent downturn, that has provided an average annual total return (including dividends) of 19% per year for the last 10 years. 2018 was a rare moment of weakness.
MO is down for two reasons: cigarette volumes have slipped more than usual and regulators have been more aggressive than they’ve been in a decade. Volume decreases are nothing new—the number of U.S. smokers decreases about 3% to 4% every year and has for some time. But Altria has been able to counter the volume slippage by raising prices on its dominant brand and ancillary businesses.
Volume has decreased slightly more than usual of late primarily because of competition from E-cigarettes. In addition, regulators have proposed restrictions on selling these new non-tobacco products to minors and threatened to outlaw menthol cigarettes, which account for about 20% of Altria’s profits. Altria is affected because it has also been in the E-cigarette business. But these things will likely take years in court to resolve and by then Altria will adjust. In fact, it already is adjusting.
The company just spent $14.6 billion on a 45% stake in cannabis (marijuana) company Cronos (CRON) and a 35% share in E-cigarette powerhouse Juul. Cronos is one of the largest cannabis companies in the world and that market is expected to grow 35% per year through 2025 and could grow even more as legalization becomes increasingly popular. Juul has a 75% share of the E-cigarette market in this country, and a growing presence overseas. The Juul industry is expected to grow from about $14 billion in sales in 2017 to $44 billion by 2023.
Altria has added strong growth to its already winning formula, and should thrive when the market recovers because there is now a reason to be excited about the stock. The current market doesn’t get excited about anything. Up or down, sideways or backwards—Altria should be a winning investment that currently pays you 6.57% just to hold it.