Monday, May 12, 2008

My Latest Dividend Investment

Altria Group, Inc. (MO, NYSE) engaged in the manufacture and sale of cigarettes and other tobacco products through their wholly owned subsidiaries, Phillip Morris U.S.A. and Phillip Morris International. Altria Group is also the majority shareholder in Kraft Foods, Inc.. With a current dividend of $3.00 per share, which represents a 14.30% yield on investment, I think this will make a great addition to my portfolio. The rest of the numbers look good, with a 34% return on equity, very low price to earnings of 4.70 and price to book of 2.38 and reasonably low debt. While I realize cigarette and tobacco products are a shrinking market in the U.S. and some of the more developed countries, their sales are increasing in other parts of the world, so I think they will be making money for several years to come. With a dividend payout ratio of 68%, the company is retaining enough earnings to service debt and provide for future growth and possibly even allow for increases in future dividend payments to shareholders. With a recent price of $20.94, the company is looking like another bargain stock to me, so I'm buying in.

Now I know all the people who are going to argue about the morality of investing in a company producing tobacco products and I don't intend to defend tobacco over the health problems it causes. I am making this decision strictly from an investors point of view, not a moral point of view. As for the people who are on their soap boxes about the evils of smoking, I would point out that every time I see something on the news about another group rallying against smoking, I can't help but think about how they got to their meeting. Can you really in good conscience berate a bad habit like smoking if you're driving an SUV or any other gas burning vehicle? Cigarettes pollute the air and cause major health problems, but so do the vehicles we drive and the foods we eat and a lot of other things. So, the way I see it, it's "six of one and half a dozen of the other" as my mother always used to say.

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