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Altria Group Sells Off On Market Stupidity, Dividend Growth Remains Solid

Summary

Altria Group looks solid and the market seems far too concerned by the prospect of regulation.

MO has enough clout to influence the regulation into policies that favor big tobacco over small tobacco.

Larger barriers to entry for vapor products would put smaller companies in a weaker position so Altria Group could make cheaper acquisitions.

Rules that delay widespread vapor use give Altria Group more time to adjust while their smokeable products deliver.

Altria Group (NYSE:MO) sold off on April 13th despite an increase in major market indexes. The decline is widely believed to be the result of concerns around the FDA's potential regulation of the "e-cig" business.

This Reaction is Completely Overblown

This is a very small product line for Altria Group. It does not warrant its own breakout in the company statements and is instead included in the "all other" category. The revenues and operating income from each segment can be seen below. For your convenience, I've placed a green box around the revenues and a yellow box around the resulting operating income:

The vapor market, which many investors and analysts seem to believe is the absolute wave of the future, is not yet profitable for Altria Group. While this market does have the potential to grow significantly, there is still substantial research to be done on the relative dangers of the product.

Big Tobacco Has Big Money

Since Altria Group is the very definition of big tobacco in America, it shouldn't be surprising that they would seek to influence the regulation. In previous coverage, I wrote about the impact of the FDA's regulation on Altria Group.

"Doesn't the FDA Hurt Big Tobacco?

It might seem that way, but it would be more accurate to suggest the FDA hurts 'Little Tobacco'. The regulatory burdens created by the FDA are substantially more onerous...


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