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Altria (MO) Hikes Dividend, Boosts Shareholders' Wealth

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Altria Group Inc.’s (MO - Free Report) business growth momentum coupled with efficient operating strategies has strengthened its financial base. This, in turn, has been helping the company boost shareholders’ wealth through regular dividend payouts and share-repurchase activities. Progressing on such lines, this renowned tobacco company’s board has approved to raise it’s quarterly dividend by 4.7% to 90 cents per share from the previous rate of 86 cents.

This marks the company’s 56th dividend hike in the past 52 years. The latest hike is in sync with the company’s long-term dividend payout ratio goal of about 80% of adjusted earnings per share.

The raised dividend is payable on Oct 12, 2021 to shareholders of record as of Sep 15, 2021. As a result of the hike, the company’s new annualized dividend rate is $3.60 per share. The new annualized dividend rate represents a yield of 7.4%, based on the company’s closing stock price of $48.65 as on Aug 25, 2021.

We note that during second-quarter 2021, the company paid out dividends worth $1.6 billion. Although the company has been executing quarterly dividend payments, the recent hike instills greater optimism. The move indicates the company’s commitment to deliver long-term shareholder value. It also reflects on its confidence in financial position and ability to generate sufficient cash flows.

In context of share repurchase activities, Altria bought back 6.6 million shares for $325 million during the second quarter. In the first half of 2021, the company repurchased 13.5 million shares for $650 million. As of Jun 30, 2021, the company had nearly $1.35 billion worth shares remaining under the current $2-billion share repurchase program. The buyback program is anticipated to be concluded by Jun 30, 2022. Altria expects to utilize the net proceeds arising from the divestiture of Ste. Michelle Wine Estates business for additional share buybacks.

Speaking of the company’s cash position, Altria ended the second quarter with cash and cash equivalents of $1,877 million, while it had no current debt (current portion of long-term debt). Altria continues to focus on having a higher-than-normal cash balance to protect financial flexibility.

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Strategic Growth Efforts Bodes Well

A stable financial position has enabled Altria to support its growth initiatives. The company is focusing on expanding its presence in reduced risk products (RRPs). In this respect the marketing and technology sharing agreement between Altria and Philip Morris International Inc. (PM - Free Report) , pertaining to the sale of IQOS in the United States, is noteworthy.  Notably, IQOS is one of the leading heated-tobacco products in the industry.

Altria is undertaking efforts to expand oral tobacco offerings. The company, through its subsidiary Helix Innovations, has full global ownership of on! — a popular tobacco-derived nicotine (TDN) pouch product. Management believes that on! is a worthwhile addition to Altria’s smokeless portfolio, as oral TDN products are gaining popularity in the United States owing to low-risk claims. The company is also undertaking efforts to expand in the cannabis industry. It acquired stakes in the Canada-based cannabis company, Cronos Group.

Amid headwinds surrounding the cigarette category, including stringent regulatory norms and consumers rising health consciousness, Altria’s efforts to boost low-risk offerings look prudent. This along with consistent gains from pricing power is likely to keep supporting the company’s performance in the forthcoming periods, and thereby help boosting shareholders’ wealth.

Shares of this Zacks Rank #3 (Hold) company have gained 9.5% in the past six months compared with the industry’s growth of 12.6%.

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