Altria (NYSE: MO) It’s a high-dividend stock for investors to own for years. And today, it yields an impressively high rate of 6.1%. It is five times higher than S&P 500 1.1% on average. In terms of cash flow, that translates to $500 more in annual dividend income on a $10,000 investment, going with the big tobacco company.
But when the yield is so high, it raises the question of whether it is safe or not. While Altria’s stock has been rising of late, it should be even higher given the impressive yield. Are investors eyeing a huge dividend stock here, or is there a valid reason to avoid Altria?
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What you may find surprising is how high Altria’s yields may seem right now, it actually is. lower Compared to what it has averaged over the past decade. There are times when its yield was well over 7% and even in double digits. The yield can fluctuate rapidly as a result of the share price, but for the most part, this has been a fairly high-yielding stock over the past 10 years.
Altria has also been raising its dividend for decades, providing investors with a huge incentive to buy and hold. And the company still expects more single-digit dividend growth in the coming years.
While Altria’s shares have been reliable for decades, I would steer clear of the trade given the risks it involves. Tobacco prices have been declining for years, and there is much uncertainty about where the company’s future growth will come from. Even though dividends may be sustainable today, it is questionable whether this will be the case in the long term. Last year, the company generated $20.1 billion in revenue, net of excise taxes, which was down about 2% from the previous year. Growth has been tough for Altria, and that’s unlikely to change anytime soon.
There are many other high-yielding dividend stocks out there, and Altria simply isn’t worth the risk. Its payout ratio is around 100% and if the company needs to direct more cash to growth initiatives, the dividend could be a necessary loss.
Over the past 10 years, Altria’s total returns (which include dividends) are about 120% — well short of the S&P 500’s more than 310% gain. If you invest purely for dividends, you can miss out on huge gains.
