Up 127% on Altria Group, Inc., with More Upside to Come
Earn Exciting Returns in Boring Stocks
Today’s chart highlights a theme we repeat over and over: “you can make exciting returns in boring stocks.”
Longtime readers know we gawk over “dull” companies. People always need simple products like soda, coffee, and pet food. While these firms don’t get mentioned much at social events, they earn steady business–which means reliable income for investors.
For proof, take a look at Altria Group, Inc. (NYSE:MO). You probably recognize some of the company’s brands like “Player’s,” “Marlboro,” and “Virginia Slims.” Whatever views you have on tobacco, Altria sells a product people buy every day.
Cigarettes represent a cash cow business.
They cost pennies to make, you sell them for a buck, and they’re addictive. Plus people tend to stick to the same brand year after year.
Most of those profits go straight to the bottom line. Because smoking rates haven’t grown in years, you don’t need to invest in new factories or equipment. And with a ban on marketing, any new competitors would have a tough time breaking into the business.
For owners, this has created quite the income stream.
The company has delivered 51 distribution hikes over the past 48 years. If it were not for a number of corporate spin-offs, Altria would have a spot on the elite list of “dividend aristocrats.”
Today, Altria pays out nearly 90% of its free cash flow as dividends. This has resulted in one of the highest yields around at 3.8%. And because management can easily raise prices, executives project profits (and by rough extension, the distribution) to grow at a high single-digit clip for years to come.
This formula has made shareholders a fortune.
In early 2014, we recommended the stock in our Automated Income newsletter. Since then, Altria has delivered a total return of 127%. And that’s including dividends.
Over the same period, the company has increased its quarterly distribution from $0.48 to $0.66. If you had bought the stock at the start of this time frame, the yield on your original investment would top 8.3% today.
Dull businesses don’t need to constantly innovate to bring in sales. They just keep making the same products and paying out dividends to owners. Moreover, no new gadget will likely replace burgers, coffee, and cleaning supplies anytime soon.
And as we’ve seen in the case of Altria, boring stocks can deliver exciting returns.
Dear Reader: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. We are 100% independent in that we are not affiliated with any bank or brokerage house. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose. The opinions in this content are just that, opinions of the authors. We are a publishing company and the opinions, comments, stories, reports, advertisements and articles we publish are for informational and educational purposes only; nothing herein should be considered personalized investment advice. Before you make any investment, check with your investment professional (advisor). We urge our readers to review the financial statements and prospectus of any company they are interested in. We are not responsible for any damages or losses arising from the use of any information herein. Past performance is not a guarantee of future results. All registered trademarks are the property of their respective owners
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