Dividend Increase | Altria (MO)

Dividend | Dividend Growth | Financial Independence | Freedom | Passive Income
Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Altria for another dividend increase!
There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On August 22nd the Board of Directors at Altria (MO) approved an increase to the quarterly dividend payment.  The dividend was increased from $0.80 up to $0.84 per share.  That's a solid 5.0% increase.  Altria is a Dividend Champion with 49 consecutive years of dividend increases.  Shares currently yield 7.24% based on the new annualized payout.

The newly increased dividend will be payable on October 10th to shareholders of recorded as of September 16th.

Since I own 95.348 shares of Altria in my FI Portfolio, this raise increased my forward 12-month dividends by $15.26.  This is the 3rd dividend increase I've received from Altria since initiating a position in March 2018.  

A full screen version of this chart can be found here.

With shares of Altria now yielding over 7% I'm more than happy with a 5% increase.  While it appears that Altria has experienced 2 dividend cuts those decreases were due to the spinoff of Phillip Morris and Kraft.  Outside of those 2 reductions Altria has delivered raises every single year.

Starting in 2010, the year after the Philip Morris spinoff, the 1-year dividend growth rate has ranged from 7.7% to 14.9% with a median growth rate of 8.7%.  Of the 6 5-year rolling periods over that time the annualized dividend growth rate has ranged from 8.3% to 10.6% with a median of 8.5%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 1990 can be found in the following chart.  

A full screen version of this chart can be found here.

*2019's dividend growth assumes the new quarterly payout of $0.97 per share is maintained for the rest of 2019.

Based on dividend yield theory, Altria's current yield of 7.24% is significantly higher than the 5 year moving average of 4.36%.  This suggests that Altria is trading at a significant discount to fair value.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

If shares of Altria were to trade at the 5-year moving average dividend yield the share price would need to be $77.06 or roughly 66% higher than current prices.  Likewise a return to a 5% dividend yield would imply a $67.20 share price or 45% higher and a return to a 6% dividend yield would result in a share price of $56 or roughly 21% higher than current prices.

Here's a quick run down of some other valuation metrics.  Altria is currently trading at a 13.9x TTM P/E, an 11.1x P/E based on FY 2019's estimates, and a 10.3x forward P/E based on FY 2020's estimates.  Looking at some enterprise ratios and Altria's EV/EBIT is 11.2x, EV/EBITDA is 11.0, and the EV/FCF is 17.1x.  That corresponds to "earnings" yields of 8.9%, 9.1%, and 5.9%, respectively.

Wrap Up

This raise increased my forward dividends by $15.26 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 3.03% this raise is like I invested an extra $503 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

My FI Portfolio's forward-12 month dividends climbed to $7,365.86.  Including my FolioFirst portfolio's forward dividends of $100.01 brings my total taxable accounts dividends to $7,465.87.  My Roth IRA's forward 12-month dividends remain at $613.10.  My Rollover IRA's forward dividends increased to $1,999.85.  Across all accounts I can expect to receive $10,078.82 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Altria's can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Altria?  Were you happy with the solid 5% increase from a 7%+ yielder?

Please share your thoughts below.