Is Altria Group Inc (MO) a Buy?

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Noted Wharton economist Jeremy Siegel stated in his book The Future for Investors that Altria Group Inc (NYSE:MO), formerly Philip Morris, was the top performing stock from 1925 to 2003. When you analyze Altria’s business, it’s easy to understand why.

At the same time, the world is a different place than it was when Altria was in its prime. Detractors of investing in sin stocks will point to a number of factors that, they contend, are sure to mean the end of big tobacco.

Altria Group Inc

These fears are rolled in to the two primary reasons for why Altria shareholders have made so much money over these many decades. You’ll soon see that these two reasons are still largely intact, and as a result, make Altria just as much a buy today as it was decades ago.

Reason #1: High dividend yield, year in and year out

For decades on end, the company behind Marlboro cigarettes, one of the most valuable brands in the world, pumped out steady profit growth and returned a great deal of those profits through to shareholders. Like it or not, Altria’s history places it in the hall of fame of corporate America. Altria Group Inc (NYSE:MO)’s history stretches back more than 180 years, and for many of those years, Altria has paid a dividend to shareholders.

Of course, Altria isn’t the only tobacco company that pays a hefty dividend. Industry competitors include Reynolds American, Inc. (NYSE:RAI) and Lorillard Inc. (NYSE:LO).

Close peer Reynolds American has a wide variety of cigarette brands including Camel, Pall Mall, Winston, and Kool. While Reynolds American offers a hefty 5.3% dividend yield, the company hasn’t performed very well in recent years. Revenue has declined for two years in a row, with full-year 2012 sales dropping almost 3%. Even worse, diluted earnings per share fell almost 7% in 2012 year-over-year.

Lorillard is much smaller than Altria, with a market capitalization of $16 billion. The company manufactures the Newport and Kent brands, and in February reported decent, if unspectacular, full-year 2012 results. Revenue and diluted earnings per share increased 2.4% and 5.6%, respectively, and the stock offers a 5% dividend yield at recent prices.

Altria Group Inc (NYSE:MO), meanwhile, continued to prove why it’s one of the market’s premier slow-and-steady stocks in 2012. The company recorded 3.5% growth in full-year revenue and saw its diluted EPS jump 25% year over year.

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