Altria is the leader of cigarettes and smokeless tobacco in the United States and the number-two spot in cigars. Altria’s most notable brands/products are:
Any investor, who’s main goal is to preserve capital, should seek, in all his or her investments, a significant difference between the current value of a business and the price in which the business can be bought. This insures protection in case of an unfavorable event and to maximize the investment return if the analysis is confirmed.
In the words of his disciple, Warren Buffett: “Never depend on a good sale. Get a purchase price so attractive that even a mediocre sale will produce good results.
Although given the title of “Dividend King” we must be vigilant in maintaining price discipline. We typically purchase operating companies at 8-10 times Cash Flow. However, a stock like this warrants special attention due to its size and dominance of their market. Chances are no other company will be able to purchase this behemoth of a company, therefore we will put a value on the business of 30 times Cash Flow. The goal is to purchase operating companies for at least half their value, with that said we will purchase this company up to 15 times Cash Flow.
Conclusion & Valuation
A quick glance at Altria gives you the impression that the company is in decline. However, that could not be further from the truth. In 2007 Altria spun off Kraft Foods and issued stock to shareholders. They did the same thing in 2008 when they spun off Phillip Morris. Take a look below and see how well these companies have done since…
Furthermore Altria has publicly stated that their goal is to issue 80% of free cash flow in dividends. This is great for investors! Altria is not in decline and has great ROIC.
I am buying up to $21.60 and not a penny more!