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Growth investors typically buy stocks based not on what a dividend investors, it’s frequently the opposite idea. Take, for example, the investment thesis for Altria Group (NYSE: MO), the giant tobacco company behind Marlboro.
Although cigarette smoking is a slowly dying trend in the United States, and has been for decades, investors have continued to buy Altria stock for its steadily growing dividend. The company is a
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That history, combined with the business’s financial staying power, gives shareholders the confidence that those dividends will continue rolling in.
How Altria makes and pays shareholders more each year
Altria only sells cigarettes in the United States, and smoking rates domestically have been in decline for decades. (It split off its international business as Phillip Morris International back in 2008.) Marlboro is the nation’s top cigarette brand by a wide margin, so it will come as little surprise that Altria has been selling fewer and fewer cigarettes every year for quite some time. But cigarettes are infamously addictive and smokers demonstrate remarkable brand loyalty — a combination of factors that has given Altria strong pricing power. It has used that to regularly boost its prices per pack, offsetting its shrinking sales volumes with higher cigarette prices.
From there, the formula is pretty simple. Altria distributes about 80% of its cash flowith fewer shares to pay dividends to, Altria has been able to raise its dividend year in and year out while keeping its payout ratio in check
