Image: Altria’s shares reacted positively to news that it would sell a portion of its stake in Anheuser-Busch Inbev.
By Brian Nelson, CFA
On March 14, Altria Group (MO) announced that it would be selling in a secondary offering 35 million of its ~197 million shares of Anheuser-Busch Inbev (BUD) it owns to unlock value for shareholders. The cigarette maker noted that it would use the proceeds of the sale for accelerated share buybacks to the tune of a $2.4 billion increase to its existing $1 billion repurchase program, a move that we like quite a bit as it helps to reduce total dividend obligations paid to shareholders given Altria’s outsized dividend yield. The cigarette maker also raised its earnings guidance because of the sale, and we continue to like Altria as a high yield dividend income idea.
Latest Earnings Report
Altria reported mixed fourth-quarter results on February 1 that showed revenue missing on the top line, but the company’s non-GAAP earnings per share coming in-line with the consensus forecast. For the fourth quarter, net revenue dropped 2.2% as a result of lower sales in its smokeable products portfolio, which was only partially offset by strength in its oral tobacco segment. Adjusted diluted earnings per share was roughly flat thanks in part to both a lower share count and lower tax rate, both of which helped offset modest weakness in its operating companies income (OCI).
Altria’s fourth-quarter press release outlined its goals for 2028, which call for a mid-single-digit annual adjusted diluted earnings-per-share compound annual growth rate and a dividend growth goal that targets a similar pace of dividend-per-share expansion. The company plans to maintain a relatively flat debt-to-EBITDA ratio of 2.0x in the coming years (it was 2.2 at the end of 2023), while it plans to keep its total OCI margin at a level of at least 60% in each year through 2028 (it was 60.3% in 2023).
Driving this optimistic view is continued strength in the company’s Marlboro, Copenhagen, Black & Mild brands, as well as NJOY, an electric cigarette and vaping products provider, which it acquired in June 2023. Altria retains a large net debt position, but the company remains a strong free cash flow generator, and its sizable stakes in Anheuser-Busch-Inbev and Cronos (CRON) offer it considerable financial flexibility. Though the firm won’t be winning any awards from ESG-focused investors, high-yield investors should certainly be taking a close look at the firm.
Concluding Thoughts
Altria will retain roughly an 8% stake in BUD following the secondary offering, and the firm reiterated that it is “committed to (its) progressive dividend goal that targets mid-single-digits dividend per share growth annually through 2028.” As a result of a lower expected share count from proceeds of the secondary offering, full-year 2024 earnings per share guidance was raised to the range of $5.05-$5.17 (was $5.00-$5.15 per share) implying a growth rate of 2%-4% from the $4.95 per share it achieved in 2023. Shares of Altria yield ~8.9% at the time of this writing, and we continue to like the company as an income generation idea.
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, RSP, SCHG, QQQ, QQQM, and VOO. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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