Reasons To Buy Altria In Current Turbulent Markets

Altria Group, Inc. (MO) is the parent company of Philip Morris USA, John Middleton and Philip Morris Capital Corp. Philip Morris International (PM) was spun off in 2008. PM sells cigarette products exclusively outside of U.S. borders. MO sells cigarettes exclusively in the U.S. There are compelling reasons for investors to consider Altria a core portfolio stock holding. This is especially true during times of turbulent stock markets. 5 Business Units MO's core brands include Marlboro, Benson & Hedges, Merit, and Virginia Slims cigarettes. MO's primary revenue driver is cigarettes within the U.S. Cigarettes provide in excess of 80% of Altria's operating profits. The company does also have operating profits in four other business units: smokeless tobacco (12% operating profits); cigars (3%); wine (1%); and financial services (2.4%). MO is the biggest seller of cigarettes within the U.S. MO's U.S. tobacco market share is approximately 50%. Smokeless Tobacco Growth MO owns the leading smokeless tobacco brand names, such as Copenhagen and Skoal. These two core brand names increased their combined second-quarter retail share up 0.8 share points compared to the prior year. Smokeless tobacco is providing a current 12% of MO's operating profits. More cigarette smokers are trying smokeless tobacco. This transition to the smokeless tobacco industry leaders provides growth opportunities for MO to market and prepare for in the near term. Ste. Michelle Wine Estates Growth The winery growth continues to shine on MO's income statement. The wine segment rose 9.4% for the second quarter year-over-year, and increased 8% for the first 6-months of the year in comparison to the prior year. Although this business segment is only 1% of operating profits, the growth continues to improve. Ste. Michelle Wine Estates continues to receive positive feedback and reviews on their wines. This business segment has the potential to move to a 5-6% operating profit segment. click to enlarge images Legal Risks Readers should be fully aware of Altria's legal risks. In the annual report, SEC 10K, pages 17 - 52 highlight ongoing lawsuits, results of lawsuits, legal proceedings, regulatory risks, and all other legal issues. These issues are not trivial and are extensive in scope and financial claims. Shareholder Friendly Income investors know management's focus upon increasing dividends, stock buybacks, and providing market-beating stock returns. The above table shows a 3-year 29.3% total annualized rate of return compared to the S&P 500's return of 13.0%. MO has beat the S&P 500 every year since 2000. Summary In a turbulent market, MO is one stock which operates independent of the economic landscape. Cigarettes are a legal U.S. product. Some people choose to smoke. Key rationale for buying this stock include: 1. MO has a .45 beta compared to the overall stock market. When other equities are volatile, MO's stock price trades within a narrow range. MO has traded between $22.75 - $28.13 for the past 52-weeks. 2. MO's dividend has been raised 45 times in the past 42 years. Management is clear on rewarding shareholders with sharing profits and sound financial decisions. 3. MO continued to show investors that dividend increases are a key focus. On August 26th, 2011, MO increased their quarterly dividend 7.9% from 38 cents per quarter to 41 cents per quarter. The annual dividend yield is 6.1% based upon a $26.72 MO stock price. 4. MO continues to aggressively buy back shares. On January 27th, the company committed to buying back $1 billion in MO shares during 2011. 5. MO continues to see progress in smokeless tobacco sales and wine sales. These product lines will provide growth markets for the upcoming years. 6. MO, on July 20th, confirmed that earnings per share (not counting one-time adjustments) will increase between 6-9% for the year. EPS figures should arrive at $2.01 - $2.07 per share. This represents a reasonable 13x price-to-earnings multiple for a sound company. 7. In 2011, Fortune magazine ranked MO number one in the tobacco industry for financial soundness and long-term investment.