Tobacco Giant Gains Profits From AB InBev
Big Tobacco Gains Profits From Big Alcohol Investment
Altria Group, Inc. recently announced that its board of directors has approved an increase of 8.2% in its quarterly dividend, amounting 66 cents per share as compared with the previous rate of 61 cents.
Until 2003 Altria was called Philip Morris Companies Inc. and is an US-based internationally operating tobacco corporation. Altria maintains a 28.7% stake in the UK-based brewer SABMiller plc.
The company’s current annualized rate of dividend is $2.64 per common share, compared with $2.44 previously. Since Philip Morris International’s (PM) spin off in 2009, Altria has increased its dividend every year – in recent years by 8% (2016) and 8.7% (2015). Notably, the company has raised its dividend 51 times in the last 48 years. It maintains a dividend payout ratio target of around 80% of its adjusted earnings per share, which is among the highest in its peer group.
Dividend for shareholders despite increasing tobacco regulation
In an environment where governments are regulating tobacco more effectively to reduce and prevent devastating harm, the tobacco giant has been returning “value” to its shareholders despite industry-wide headwinds. Strict anti-smoking regulations by governments, globally, in the form of restrictions on packaging and high excise duties are affecting the stock.
Despite a tax environment that favors public health over corporate interests and declining cigarette volumes, Altria has been able to remain afloat and generate revenues with higher cigarette pricing. Though higher pricing might lead to possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases owing to the addictive quality of cigarettes.
AB InBev boost tobacco giant
Another reason for Altria to stay afloat is its investment in SABMiller. The takeover of SABMiller by Anheuser-Busch InBev in October 2016 helped Altria, SABMiller’s biggest investor. Altria received a 9.6% ownership of AB InBev, and approximately $5.3 billion in pre-tax cash per the terms of the acquisition, which the company used to reinvest in its core businesses or/and return “value” to shareholders.