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Sell Altria Group?


Is the stock overvalued? Perhaps.

But will it matter much in the long-term?

Stock's floor price catches up with increasing annual dividends.

With many income stocks on a tear recently, we profiled two income favorites AT&T (NYSE:T) and Johnson & Johnson (NYSE:JNJ) to extrapolate the future returns for investors buying these stocks at their current levels. When talking about income stocks and ones that have run up recently, it is hard to look past Altria Group (NYSE:MO), which is profiled in this article. Let us get into the details.

Current Situation:

  • Like many stocks, Altria is also trading near its 52-week highs at nearly $64.
  • As a result, the yield right now is well below its 5-year average of 4.70%.
  • How wise is it to buy the stock now?

Income Projection:

Almost everyone owns this stock for its income. Yes, the recent capital gains are good, perhaps great. Even our most recent transaction on this stock is up 12%. But let's not lose sight of the fact that this is an income play. Any gains on top of it must be appreciated and not seen as a reason to sell.

Source: Yahoo Finance

Altria's Dividend Growth Rate (DGR) has been about 8% the last few years as shown in the table above. The remarkable consistency stands out, as the dividend growth rate has always been between 7% and 9%. Given the fact that the company has a stated dividend payout policy of 80% and its consistency, let's assume a dividend growth rate of 7.50% for the next five years. The yield on cost will grow up to 5.30%. This isn't too bad considering the stability this stock brings into a portfolio. Also, keep in mind that a yield level that is built up steadily is much more reliable than a high-flying yield that might not be supported properly by a company's earnings.