I’ve been talking about the stock market lately — both from a big-picture perspective and also by looking at individual companies. But I have NOT talked about any of the specific companies in the portfolios I run. So, today, I want to discuss one particular company’s stock that sums up everything I love about dividend investing.
I have a feeling my paying subscribers won’t mind one bit. After all, I’ve been recommending this company for nearly four years now … and I’m already tracking quite substantial gains!
The company? Altria, the tobacco firm formerly known as Philip Morris.
Since I first recommended buying it back in July of 2007, the stock has produced a total return of 58.2 percent … and it’s up 113.9 percent since I recommended buying additional shares in December of 2008.
But perhaps the most important aspect of this particular investment — and many others like it — is the fact that Altria also boasts a long history of not only paying dividends … but increasing them.
The Hidden Beauty of Steadily Rising Dividends …
If you were to run out and buy some shares of Altria right now you’d already be locking in a very attractive yield of 5.6 percent. That’s far better than the rates you’d get from most bonds … and certainly more than any CD or money market fund out there.
What’s more — I would argue that those payments are as secure (perhaps more secure, in fact!) than the income from the other alternatives. Heck, Altria certainly has better cash flows and a stronger balance sheet than Uncle Sam does right now!
But what’s really instructive is a simple look at Altria’s payment history. While its spinoffs of an international division and Kraft Foods make the company’s dividend record a bit tricky to follow, MO has essentially raised its shareholder payments for 43 straight years.
That alone is a strong indicator that it will not only make its future dividend payments, but also continue increasing them. And therein lies the hidden beauty for investors!
Altria’s history of steadily rising dividends means that its long-time investors are getting bigger and bigger dividend checks every single year. And you don’t have to go back 43 years — nor even one-third that far back — to see amazing results.
All told, someone who bought Altria just 15 years ago is now earning an effective dividend yield of 23.6 percent, more than SEVEN TIMES what you could get on a 10-year Treasury bond today!
Think about that for a minute — a 23.6 percent annual return is enough to more than double your initial investment every four years!
And it means that while other investors were busy chasing fast profits during the dot-com boom — only to see them go up in smoke — investors in steadily-rising dividend companies like Altria have made out like silent bandits.
The best part of this principle, called “yield on cost,” is that it applies to all dividend-paying stocks!
As long as you buy into companies that are boosting their payments, your effective yield will keep going up … and there’s absolutely no limit to how high it can go.
The way it works is simple — you only buy your shares once. And after that, your entry price never changes. But if the dividend payments keep increasing, they represent a larger and larger share of your initial investment every year. So it doesn’t matter what the current “indicated yield” — the one that you’ll find in newspapers and websites is … it only matters what YOUR yield on the original price paid is!
In fact, the only other thing that can potentially mess this whole deal up is if the stock price itself declines.
Of course, when a company is consistently raising its dividends, it’s almost guaranteed that profits and revenues are also rising. That implies higher stock prices … not lower prices.
So you can typically expect capital gains ON TOP OF those juicy (and growing) dividend checks.
That sure has been the case with Altria:
- In the last year, MO has produced a total return (capital appreciation plus dividends) of 33.92 percent vs. a 15.1 percent gain in the broad S&P 500 …
- Over the last two years, it’s returned 87.9 percent vs. a 45.5 percent gain for the “500″ …
- And over the last three years — as the worst market crash in recent memory unfolded — it had still returned 29.1 percent while the broad market LOST 8.3 percent!
Clearly, buying and holding so-called boring dividend stocks can produce some truly exciting returns!
And that’s really my point …
The Ideal Income Scenario Is Creating
A Whole Portfolio of Stocks Just Like Altria!
Only you can decide whether Altria is right for your portfolio. At this point, I still think it’s a great income stock though it’s not screaming at current levels, either.
But really, the idea here is that you want to own stocks LIKE Altria.
Companies with long histories of steadily rising dividends.
Companies with strong businesses and brands … that are profitable right now … and that will do well through both bad times and good.
When you invest in these kinds of companies — and assuming you diversify your holdings across different sectors, industries, and even countries — you are truly putting together a portfolio that will both produce solid income now, and also continue to grow your wealth (and future cash flows) with every passing year.
This is precisely what I’m doing for my own father’s retirement portfolio right now, and it’s what I would recommend for anyone else looking to put new money to work in today’s aging bull market, too.
Best wishes,
Nilus
{ 9 comments }
Sound well thought out investments, for people close to or at retirement age.
This fellar is wise & honest. Wish I had some xtra cabbage to invest enough to make a difference in my income – hope others that do will follow his advice & reap rewards for now my finances are in a rather severe slump
Kind Regards
Sonny
Yes, Nilus, it is a very good paying stock.
I have known that for years, just like you. The only thing is, well, their product kills people in horrible ways.
Sorta like Monsanto is a good stock, too.
But
If one has no qualms about helping to support and grow companies that make their living killing, maiming and otherwise destroying our citizens, well then, just go right ahead and invest in it.
But, as for me, I still have a conscience more powerful than my greed.
Silly, I know. But there it is.
Aloha,
Tom
It is possible to recommend Altria if you divorce investments from morality.
As an oncologist, I repeatedly see the “hidden” end result of tobacco addiction.
Tobacco is different from alcohol, firearms, etc which have some legitimate uses.
Although Altria and others are “diversified”, most of the profit comes from tobacco, and from addicting the poor in the third and second worlds.
Advocating Altria makes you an accomplice to murder.
T. Hogan, MD
AGREE WITH TOM BEACH AND THOMAS HOGAN! I LOST A BROTHER TO LUNG CANCER AND FRIENDS. I COULDN’T SUPPORT TOBACCO IN ANY FORM. NOR ALCOHOL!
How silly. You’re contributing to mass death whenever you pay your taxes to support our military. Buying bombs and bullets used to kill is okay, then, huh? As long as it protects your ass, it’s okay, right?
People like you would invest in “big pharma” and feel so content with that moral choice not even knowing the thousands dying from the poison pills they order obedient doctors to stuff down their patients throats.
People who buy cigarets and cigars do so knowing full well what they’re doing. Their choice, and their right. As it’s mine. Been smoking all my life, since early teens, and at age eighty I’m still here and kicking up my heels yet still sadly watching so many die at the ignorant hands of their enslaved doctors.
Thanks Nilus. Think I’ll look into Altria.
Teach me….increasing our learning resources is always positive
Your analysis has a number of major flaws and your Pollyanna attitude about buying and holding ‘good’ dividend stocks for the long haul is bad advice, especially now with
the high potential of a significant global market correction (ie. CRASH) in the near term. I would tighten all my stops if I had any stocks in play. Just like 2008–its all the same market and with the ‘jumpiness’ of the investor these days, everything will get wacked real good. However, I don’t think it will take a year this time as it did in 2008.
In regards to your recommendation in July, 2007—-that was a bad call for buy and hold–on 12-3-07, MO reached a high =24.21 and about one year later on 12-15-08
MO had dropped to 14.42. A 40.2 % loss in price which took care of any dividend or price gain since your July Rec. Now for those poor saps that bought and held on—it took three years to get back to where it was on 12-15-07. I would not call that smart investing! You can verify the above numbers on any interactive 4 year stock chart for MO such as ‘StockCharts.com’.
I would be very surprised if you published this negative comment about this article, but I had to give you my take on the ‘buy and hold’ technique. Its good in a steady bull market, but in this FED-Obama manipulated Bear Market its a No-No!
It seems to me that people will do what they want to do, regardless of the health risk involved. Everyone knows the risk because it has been publicized over and over, yet they smoke because they like doing so. To me it’s not much different than getting involved in other types of risky activity of which there are many kinds such as fooling around with another man’s wife or one (or more) of the female employees at work, race car driving, getting high on drugs, overindulging in alcoholic beverages, and overindulging in foods that lead to the myriad of health issues stemming from obesity like an early coronary and diabetes.