Since writing my bullish piece on Altria Group Inc. (MO) back in the Summer of 2018, the shares are down about 33.5% against a gain of about 16% for the S&P 500. My total return is “only” down about 20%, though, due to the positive impact of the dividends.
Much has happened at the firm, obviously, so I thought I’d check in on the name to see if I should add to my position or cut my losses. I’ll try to answer that question by looking specifically at the latest financial history here. In particular, I want to try to understand the extent to which the dividend is sustainable at the current rate. I’ll also look at the stock as a thing distinct from the underlying business. Finally, as is my frequent practice, I’ll offer an options trade.
- I think the “cigarette sales are on the decline” story is very, very old and has limited relevance to investors in companies like this today.
- Comparing the company’s financial obligations to its current and likely resources reveals that the dividend is safe here.
- For those who are nervous about buying at current, discounted, prices the options market provides a great alternative.
I know you’re busy people, dear readers, and so I’ll offer a synopsis of this article now in case you missed both the title and the bullet points above. I think Altria is a great buy at the moment on the back of a sustainable dividend. For those who are nervous about buying at current levels, the options market is offering some decent premia on short puts. For my part, I’ll be both buying shares and selling the puts I describe below, and I recommend that investors follow me.
Before getting into the meat of the article, though, I want to spend some time framing the discussion by making two fairly obvious points.
Pssst….Water is Wet
Patrick Doyle – Seeking Alpha – September 22, 2020.