Dividend-paying stocks are often considered conservative investments best utilized in income-driven portfolios.
But high-yielding dividend stocks can add up over time and become the biggest gainers in even the most aggressive portfolios.
One high-yield dividend payer has the right defensive ingredients and offensive capabilities to fulfill virtually any role an investor is looking for while providing steady profits.
A Best-in-Class Defensive Stock and Dividend Powerhouse
Altria Group (MO) is a $95.4 billion tobacco conglomerate and one of the largest in the world. It is the parent company of Phillip Morris, the producer of Marlboro cigarettes, and owns stakes in the brewer Anheuser Busch Inbev (BUD) and JUUL Labs, an e-cigarette company.
The company reported $1.09 EPS in the fourth quarter, coming in on target with analysts’ estimates. Net revenues of $6.3 billion for the quarter similarly met expectations, but the overall sentiment management gave looking forward was more bullish.
After the Q4 earnings release, Altria’s management issued guidance for 2022 with a projected full-year diluted EPS estimate between $4.79 and $4.93 per share. Management anticipated higher-than-average demand driving profits higher over the next year.
MO – See MarketClub Momentum Score
Aside from the stock’s enormous dividend yield, the biggest catalyst for the stock moving forward is the company’s ability to grow steadily in any geopolitical or economic climate. As a classic sin stock with global appeal, sales of its tobacco products stay consistent and give investors a sure-fire winner over the long term.
Goldman upgraded the stock in March from a “neutral” recommendation to a “buy” while upping its price target from $48 per share to $57 per share.
The Fundamental Angle
The stock trades very cheaply at just 11 times earnings compared to the average of 21 times the tobacco industry.
The long-term projected EPS growth rate of 11% gives it a PEG ratio of only 1. This ratio is a good sign that the stock is still trading at undervalued prices.
Undoubtedly, the real incentive in the stock is its extraordinary dividend yield of 6.7%, which is one of the highest yields investors will find in the market right now.
Surprisingly, the company said that the yield meets its goal of keeping its dividend payout ratio to 80% of diluted EPS. That should mean that investors won’t have to worry about losing it anytime soon.
Adding to its defensive story is the low beta ratio of just 0.61, which reduces portfolio volatility and helps stabilize long-term consistency.
The Technical Side
Looking at Altria’s chart, we can see a stock with a slow but steady upward climb over the past several months.
The shorter-term 20-day SMA is trending well above the 50-day and 200-day SMA, while the RSI of around 60 indicates that the stock isn’t overbought or oversold.
See the Full Technical Analysis Report for MO
While there has been some volatility in the stock price over the past week, trading volumes remained average to lower-than-usual.
The Bottom Line
Based on Altria’s full-year EPS estimates, this stock should be fairly valued at around $58 per share. A move to this price would represent more than a 14% gain with the dividend reinvested.
Anyone looking for a solid defensive play, income, or larger-than-average returns will find this stock to be more than exceptional in their portfolio.
The above analysis of Altria Group (MO) was provided by financial writer Daniel Cross.
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