5th Best Stock Pick Is Up 18.1% Since February 2021
Over the last couple months, I’ve shown you stocks to avoid…
- Should You Buy Covid Test Company Abbott Laboratories?
- Continue Avoiding Comcast After Free Cash Flow Falls 31.6%
- Should You Buy Big Pharma Company Eli Lilly?
- Is Logitech A Buy After Income Triples?
- Should You Buy Caterpillar And its 2.1% Dividend?
Stocks to consider buying…
- 3 Reasons To Buy Hershey (HSY) – When This Happens…
- Is Qualcomm A buy After Sales Rise 73%?
- Should You Buy Oracle Stock Before Earnings?
- Should You Buy Cisco Before Earnings?
- Why Intel Is Still A Buy After Its Latest Earnings…
And some of the best stocks related to the coming Internet of Things… Which you can find linked further below.
All these recommendations are to help you either avoid pain and terrible stocks. Or to help you find potentially great stocks to invest in during this pandemic.
If you do both well, it helps you earn higher than average investment returns and build wealth.
Because the fewer investment losses you have the more capital you keep. And the more capital you keep the faster you compound your money.
With all that in mind, today I tell you why to Buy This 7.9% Dividend King.
Altria (MO) is the United States largest cigarette and smokeless tobacco company.
And its #1 brand Marlboro owns an estimated 43% of the entire United States cigarette market as of 2020.
It’s based in Richmond Virginia. It has a $80.81 billion market cap. And it pays a 7.9% dividend which is reason #1 to consider buying its stock.
Altria’s 7.9% Dividend
Over the last decade Altria’s paid out a total of $21.92 per share in dividends.
At today’s share count of 1.86 billion, that’s equal to $40.77 billion paid out to shareholders in that time.
Or more than half its current market cap.
Plus, it grew its dividend from $1.46 per share in 2010 to $3.28 per share now which is a total growth rate of 125% since 2010.
These regular payments help you earn more money for your retirement. And they’ll help you in any kind of prolonged economic issues like we’re dealing with today.
It can do this because it earns enormous profits. Which is reason #2 to consider buying Caterpillar’s stock.
Altria’s Huge Profits
Over the last decade it earned an average operating income margin of 44.6% per year.
I look for anything above 10% consistently.
Another way I look at how profitable a company is by looking at its free cash flow to sales (FCF/Sales) margin.
Over the last decade this averaged 26%.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above. If a company surpasses both thresholds it makes it a great operating business that is both safe and ultra-valuable.
Why use these two metrics instead of net income – or earnings – like most people do?
- Net income is far easier to manipulate than operating income or free cash flow.
If you have good enough lawyers and accountants, you can make your net income about whatever you want to by using things like tax credits and loopholes.
- Any time I evaluate a stock, I look at it as if I were to own the entire company. And doing that I want to know the actual profit a company produces from its operations.
Which is what operating income and FCF/Sales show you.
Altria surpasses both ultra-important metrics. This not only means Altria is a world class business operation. But it also adds an enormous margin of safety to potentially buying its stock.
It can do this because of its massive competitive advantages.
Altria Has Massive Competitive Advantages
Something people will not stop doing during any kind of long-term economic issues like we’re dealing with today is smoking and chewing tobacco.
- Because they can’t quit due to the addictive nature of tobacco of course.
- But also because most smokers and chewers like doing those things.
Because of this, cigarette companies will benefit no matter the economic situation.
And Altria is the biggest and best.
Altria is the owner of some of the most powerful tobacco brands in the world: Marlboro, Copenhagen, Skoal, and Black & Mild as just a few examples.
Marlboro is the 23rd largest/most recognized individual brand in the world. And this brand alone owns 43% of cigarette market share.
How large is that?
The Marlboro brand is larger than the next 8 largest cigarette brands combined.
These competitive advantages – along with others I didn’t talk about like high taxes and economies of scale – are why it earns such huge and consistent profits and cash flows.
And how it can pay and continue to grow such a large dividend.
Most of the time when a company generates large profits, it leads to little debt compared to its profits and size… That’s not entirely the case here for Altria though.
Altria Has Higher Debt Than I Like
As of this writing it has $4.12 billion in cash compared to $29.26 billion in debt.
As a percentage of its balance sheet, total liabilities make up 93.26%.
Debt makes up 36.2% of its market cap.
And its debt-to-equity ratio is 8.84.
While not terrible, these are all still higher than I’d like.
For example, I look for stocks that have a debt-to-equity ratio below 1. And debt levels as low as possible compared to cash and profits.
Because this makes the company a safer investment. This is especially important with all the uncertainty going on today.
The reason its not a deal breaker for Altria is because of its huge and long-term competitive advantages… That lead to some of the consistently highest operating profit and free cash flow margins I’ve ever seen.
But what about its valuation? Is it cheap enough to buy?
Altria IS Cheap
With the markets at or near all-time highs you’d expect a great stock like Altria to be selling at an enormous valuation.
But it’s not…
Its P/E is 18.1.
Its P/CF is 9.6.
Its forward P/E is 9.5.
And its EV/EBIT is 13.
On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.
And on EV/EBIT I look to buy stocks below 8.
These show that Altria is right on the edge of undervalued and overvalued.
Normally, I’d tell you to avoid buying its stock right now until its cheaper… But because of its huge competitive advantages, profits, and cash flows there’s enough margin of safety for me to recommend you buy it today.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning it in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning it going forward.
Something else that adds even more margin of safety… Altria owns 10.2% of Anheuser Busch (BUD) which is the largest brewer in the world.
Its market cap is $127.5 billion. Meaning Altria owns shares in BUD equal to alone is worth $13 billion as of this writing.
Another way to think about this is if you buy Altria right now, you get it and its huge competitive advantages, profits, cash flows, and 7.9% dividend.
And you get 10.2% of BUD worth $13 billion for free.
If you’re looking for a solid, safe, dividend paying, stable, and enormously profitable investment to buy, consider buying Altria.
As of this writing, Altria is still a great stock to consider buying… Even after its 18.1% rise since February 18th, 2021.
- It has enormous competitive advantages.
- It earns massive profits and cash flows.
- It dominates its industry.
- Its cheap.
- And it pays you a large and growing dividend.
These are the exact kinds of stocks you must consider buying right now with the various risks in the market that I’ve talked about at length in the last few weeks.
If you’ve missed any of those articles, here are the main risks I’ve talked about at length the last few weeks.
- Stock market valuations at or near all-time records.
- Inflation is rising rapidly.
- Debt levels continue to go straight up and now sit at a combined $281 trillion worldwide.
- Interest rates are rising.
- Unemployment is rising again…
- And so are Covid cases and deaths.
It’s not just one large risk out there right now… There’s many… And almost no one else is telling you about any of this.
Because of all the risks out there right now, I sent you this article in case you missed it.
And I hope you consider investing in Altria stock to protect your retirement portfolio… Before any kind of market crash.
It’s the 5th best pick I’ve made in the last year in terms of returns to you… And I only recommended it to you on February 18th, 2021.
Tune in tomorrow to see the 4th best pick that is up 37.7% since July 2020.
Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.