Key Points
Altria's yield has normally been high and well above the S&P 500 average.
The company, however, has struggled to generate much growth and faces an uncertain future.
The stock's total returns over the past decade have been fairly underwhelming.
Altria (NYSE: MO) has been a top dividend growth stock for investors to own for years. And today, it yields an incredibly high rate of 6.1%. That's more than five times higher than the S&P 500 average of 1.1%. In terms of cash flow, that translates into $500 more in annual dividend income, on a $10,000 investment, by going with the tobacco giant.
But when a yield is that high, it begs the question of whether or not it is safe. While Altria's stock has been rising of late, it should arguably be rising even higher given its attractive yield. Are investors overlooking a tremendously great dividend stock here, or is there a valid reason for avoiding Altria?
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Altria's yield is actually lower than normal
What you might find surprising is that, as high as Altria's yield may seem right now, it's actually low compared to what it has averaged over the past decade. There have been times where its yield was well over 7% and even into double-digits. The yield can change quickly as a result of the share price, but for the most part, this has been a fairly high-yielding stock over the past 10 years.
MO Dividend Yield data by YCharts
Altria has also been raising its dividend for decades, providing investors with a tremendous incentive to buy and hold. And the company still anticipates more single-digit dividend growth in the years ahead.
The dividend is high, but so too is the risk that comes with the stock
While Altria's dividend has been reliable for decades, I would steer clear of the business given the risks it contains. Tobacco rates have been declining for years, and there's plenty of uncertainty about where the company's future growth will come from. Even though the dividend may appear to be sustainable today, it's questionable whether that will be the case over the long term. Last year, the company generated $20.1 billion in revenue, net of excise taxes, which was a decline of around 2% from the previous year. Growth has been hard to come by for Altria, and that's not likely to change anytime soon.
There are many other high-yielding dividend stocks available, and Altria simply doesn't look to be worth the risk. Its payout ratio is around 100% and if the company needs to direct more cash toward growth initiatives, the dividend may end up being a necessary casualty.
Over the past 10 years, Altria's total returns (which include dividends) have been around 120% -- well short of the S&P 500's gains of more than 310% over that stretch. If you invest purely for the dividend, you could be missing out on greater gains.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
