Investors get defensive with tobacco stocks — Altria's eye-popping 7.4% dividend - The Average Joe

    Investors get defensive with tobacco stocks — Altria’s eye-popping 7.4% dividend

    Kevin Roche — Analyst

    September 2, 2021

    altria stock

    September 2, 2021

    What might be more addictive than tobacco is the sweet 7.4% dividend yield paid by tobacco giant, Altria. But some investors might have to quit cold turkey. On September 9th, the FDA will announce which vape products can stay on the market – deciding the fate of hundreds of tobacco companies in the process.

    The stock market is getting defensive

    The US economy boomed this year. Not only did it exceed its pre-pandemic size in the second quarter of 2021, but S&P 500 companies’ profits rose 92%.

    The economy’s recovery has been lucrative for investors too, with the S&P 500 up over 20% in the past year. But signs warn that the delta variant is impacting the market:

    • Goldman Sachs cut its third-quarter economic growth forecast from 3.5% citing increasing covid outbreaks.
    • Utilities and healthcare (two defensive stocks) are up 7.8% and 6.6% respectively this quarter.

    When the economy worries investors, they turn to defensive stocks – those with stable earnings and dividends regardless of the economic state.

    Defensive industries include utilities and healthcare, with one of the biggest being tobacco.

    Beware the side effects of smoking…

    Altria, the tobacco giant with a $93b market cap, makes nearly half the cigarettes sold in the US. It also has a 35% stake in Juul, which controls over 46% of the market for vapes.

    • What’s even more impressive: its eye-popping 7.4% dividend yield.
    • Meaning: For every $100 invested, Altria pays out a total of $7.40 in dividends each year.

    It’s managed to pay out a dividend every year since 1995. Not bad considering savings accounts would only net you ~1% return.

    Too good to be true? It might be. Altria is currently locked in a legal battle over breached antitrust rules in its 2018 acquisition of Juul, and that’s not even the worst of it…

    Investors: Judgment day

    Altria’s dividend is a thing of beauty – but the FDA will be deciding if its product is too:

    • Last year, tobacco retailers were required to take their vape products off the market or submit them for FDA review.
    • Retailers had to prove to the FDA that their vapes were less harmful to consumers than cigarettes.

    While Altria’s dividend makes it an attractive investment, it’ll have to win two major battles – one with the FDA, and one over Juul. Otherwise, investors will face some serious withdrawals.

    Recent Posts