By What Percent Might Altria Raise Its Dividend?

+4.83%
Upside
43.62
Market
45.73
Trefis
MO: Altria Group logo
MO
Altria Group

Altria (NYSE:MO) has a history of boosting its dividend for 46 years consecutively, after accounting for the impact of spin-offs. The company’s target dividend payout ratio is ~80% of its adjusted EPS, with a present annualized dividend rate of $2.26 per share. If the dividend stayed at the same rate, it would represent a growth of over 4% for 2016.

MO- Div Growth

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However, the company has ordinarily raised its dividend in the second half of the year. This would imply that the investors are in for a dividend improvement, once it is announced. Given the company’s target payout of 80%, we can consider a scenario where the dividends are computed, keeping in mind its annual EPS projection.

During the recent second quarter earnings conference call, the company raised its outlook for the year, saying it expects adjusted earnings of $3.01 to $3.07, up from $3 to $3.05 per share. If we take an average of that for our calculations, an EPS of $3.04 can be used.

Altria- Payout $3.04

This scenario shows a dividend growth of close to 8%. However, if we actually consider the EPS consensus estimates for our calculations, the rate of growth in the dividend payment will actually be much higher. According to Nasdaq, the quarterly EPS projections for the next four quarters (Q3 and Q4 of FY 2016, and Q1 and Q2 of FY 2017) are $0.81, $0.73, $0.78, and $0.88, totaling $3.20. One of the possible reasons for Altria raising its outlook could be the windfall it will receive from the SABMiller- AB InBev deal.

MO- Quarterly EPS Forecast
Altria- Payout $3.20

The company is also looking to its smokeless products segment to be a key growth driver in the future, especially since the smoking rates have been on a decline in recent years, leaving only price increases as a way to generate more revenue from the smokeable products division.

Given these factors, we feel the dividend increase by the company will be in the range of 7.6% and 13.3%, (probably in the 8% range of the last few years), which, although may sound large, may not be such a problem, given the increase in the expected pre-tax cash it will receive from the SABMiller buyout, from $2.5 billion to $3 billion.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Altria.
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