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Altria Hikes Dividend by 8.2% Despite Industry Headwinds

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Altria Group, Inc. (MO - Free Report) recently announced that its board of directors has approved an increase of 8.2% in its quarterly dividend, amounting 66 cents per share as compared with the previous rate of 61 cents. The newly hiked dividend is payable on Oct 10, 2017, to shareholders of record  on Sep 15.

The company’s current annualized rate of dividend is $2.64 per common share, compared with $2.44 previously. Since Philip Morris International's (PM - Free Report) spin off in 2009, Altria has increased its dividend every year by 8% in 2016 and 8.7% in 2015. Notably, the company has raised its dividend 51 times in the last 48 years. It maintains a dividend payout ratio target of around 80% of its adjusted earnings per share, which is among the highest in its peer group.

Altria has been consistently returning value to shareholders through dividends and share buybacks. In the second quarter of 2017, the company paid almost $1.2 billion in dividends and nearly $2.4 billion in the first half of 2017. During the second quarter, Altria also repurchased 14.4 million shares under its existing share repurchase program for approximately $1.05 billion. As of Jun 30, Altria had approximately $335 million remaining in the share repurchase program. In July, Altria’s board authorized a $1 billion expansion to the program. Altria expects to complete the expanded $4-billion share repurchase program by the end of the second quarter of 2018.

Further, the takeover of SABMiller by Anheuser-Busch InBev (BUD - Free Report) in October 2016 helped Altria, SABMiller’s biggest investor. Altria received a 9.6% ownership of AB InBev, and approximately $5.3 billion in pre-tax cash per the terms of the acquisition, which the company used to reinvest in its core businesses or/and return value to shareholders.

Industry Headwinds Effecting Stock Price Performance

Notably, the tobacco maker has been returning value to its shareholders despite industry-wide headwinds. The tobacco stocks have been primarily hurt by the declining use of tobacco since past many quarters. Strict anti-smoking regulations by governments, globally, in the form of restrictions on packaging and high excise duties are also affecting the stock. Additionally, consumers’ preference for e-cigarettes or substitutes for cigarettes are largely affecting the cigarette volume. The recent FDA proposal to lower nicotine in cigarettes to non-addictive or minimally addictive levels has also added to the company’s woes.

Most recently on Jul 28, U.S. Food and Drug Administration (FDA) has proposed to lower nicotine in cigarettes to non-addictive or minimally addictive levels.

A look into Altria’s price performance over the past six months, projects that the company’s shares have decreased 14.7%, wider than the industry’s decline of 5.2%. The broader Consumer Staples sector depicted a growth of 3.6% in the said time frame.

Proactive Measures to Remain Afloat

Despite unfavorable tax environment and declining cigarette volumes, Altria has been able to remain afloat and generate revenues with higher cigarette pricing. Though higher pricing might lead to possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases owing to the addictive quality of cigarettes.

Additionally, Altria has promptly responded to the general shift among consumers toward low-risk, smokeless tobacco products due to serious health hazards of smoking cigarettes. Altria offers several reduced risk tobacco products that helped it to maintain its market share. Altria collaborated with Okono A/S and developed innovative, non-combustible nicotine-containing products for adult smokers. Further, Altria’s marketing and technology agreement with Philip Morris, under which the latter markets its MarkTen e-cigarettes internationally, is boosting the company’s business prospects. Altria also distributes two of Philip Morris’ heated tobacco products in the United States, which is also positive factor in terms of business growth.

Such dedicated efforts are expected to improve the company’s stock performance, going ahead. Altria currently carries a Zacks Rank #3 (Hold) and has a long-term growth rate of 7.1%.

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A better-ranked stock from the same sector includes Constellation Brands, Inc. (STZ - Free Report) carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Constellation Brands has an average positive earnings surprise of 11.7% over the past four quarters. It has a long-term earnings growth rate of 18.2%.

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