Is Altria Group Inc (MO) a Buy?

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Most importantly, Altria increased its dividend by 7.3% in 2012. Altria has increased its dividend 46 times in the last 43 years.

Reason #2: A restrained valuation

The combination of fear surrounding declining smoking rates and fear of additional government intervention in the tobacco business served as an anchor on Altria Group Inc (NYSE:MO)’s valuation for years. Despite paying and raising its dividend every year and reporting solid earnings growth for decades, investors were never convinced of the future outlook for tobacco.

As a result, Altria’s valuation never got out of hand. That meant that all those quarterly dividend payments could have been reinvested at low prices, thereby allowing investors to buy a lot of shares over decades of dividend reinvestment.

Interestingly, you’ll notice that those fears are still around today. Many investors shun tobacco stocks to make a social statement. Others fear the government, thinking that higher tax rates and/or regulations are akin to an axe being wielded above Big Tobacco’s head.

I respect an individual’s decision to avoid tobacco stocks for social reasons. However, the latter fears are, I believe, foolish. While you can certainly question the collective intelligence of our lawmakers, I don’t think anyone is dumb enough to kill the goose that lays the golden eggs. Consider the many cash-strapped states and municipalities that depend sorely on the excise taxes that tobacco sales provide. They’d have to be absolutely insane to do anything that turns off the spigot that is tobacco tax revenue.

The Foolish bottom line

Altria Group Inc (NYSE:MO) today, as it has for decades, yields nearly 5% and trades for a modest valuation. The stock exchanges hands for about 16 times trailing EPS, about in-line with the valuation on the broader market.

If you consider yourself a Foolish investor, meaning you understand the merits of long-term, buy-and-hold investing, then you can see how valuable Altria can be for your portfolio. Because human beings have vices, often distasteful ones, and since states and municipalities desperately need cash now more than ever, Altria will be around for a long time to come.

That means that new investors can enjoy decades of big dividends and the opportunity to reinvest those dividends into more shares, creating something of a snowball effect that will lead to a comfortable (and likely early) retirement. I’m an owner of Altria shares, and I’d advise you to join me.

Robert Ciura owns shares of Altria Group. The Motley Fool has no position in any of the stocks mentioned.

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