Cigarette maker Altria Group Inc. (MO - Analyst Report) has hiked its quarterly dividend by 9.1% to 48 cents per share payable on Oct, 2013 to shareholders as of Sept 16, 2013. The new raise brings the annualized dividend rate of Altria to $1.92 per share. Last year, Altria had raised its dividend by 7.3%.
Altria regularly returns value to its shareholders. Since the spin off of Philip Morris International Inc. (PM - Analyst Report) in 2008, Altria increased its dividend every year. Moreover, Altria has increased its dividend 47 times in the last 44 years. The company has a dividend payout ratio target of around 80% of its adjusted earnings per share.
Besides dividend,Altria has announced that it will enhance its share buyback plan by $700 million to $1 billion in a year from the current annual buyback plan of $300 million.
The recent hike in dividend and enhanced share buyback program reflects the company’s strong cash position. As of the recently concluded second quarter, Altria held $2.6 billion cash and cash equivalents compared to $3.8 billion as of the prior quarter. Long-term debt as of Mar 31, 2013, stood at $12.9 billion compared to $11.9 billion in Mar 31, 2013.
In Jul 2013, Altria reported its second-quarter earnings of 62 cents per share in the missing the Zacks Consensus Estimate by a penny. However, the results exceeded the prior-year quarter’s earnings of 59 cents by 5.1%.
The earnings upswing came from higher operating income in the smokeable and smokeless products segments, lower interest and other debt expense and lower outstanding shares.
During the second quarter, Altria repurchased 3.7 million shares at a total cost of approximately $135 million under its current $300 million share buyback plan.
Altria Group, like its peers Lorillard Inc. (LO - Analyst Report) and Reynolds American Inc. (RAI - Analyst Report), is diversifying its product portfolio due to declining smokeable cigarette volumes. Smokeless products and e-cigarettes are the key product categories which can drive long-term growth. The recent launch of Mark ten e-cigarettes is particularly encouraging for Altria’s foray into the fast growing e-cigarette category will yield high sales in the coming quarters. Moreover, positive pricing will help Altria offset the volume drag and achieve the overall sales growth. Altria holds a Zacks Rank #3 (Hold).