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Michael Fowlkes' Analyst Insights

Options and ETF Analyst Writer
Michael Fowlkes
Author Bio


August 15, 2016 - Altria to Extend Streak of Dividend Increases

What's Happening

Altria (MO) has a hefty 3.4% dividend yield, and the company has boosted its dividend during each of the last seven years. The company has a high 73.9% payout ratio, but that will not stop the company from extending its streak of increases this week. The stock has appreciated 14.9% on the year.

Technical Analysis

MO was recently trading at $66.89, down $3.25 from its 12-month high and $19.48 above its 12-month low. Overall technical indicators for MO are bullish, and the stock is showing signs of a possible trend reversal. The stock has recent support above $65.70, and recent resistance below $67.25. Of the 10 analysts who cover the stock, four rate it a “strong buy”, one rates it a “buy”, and five rate it a “hold”. The stock receives S&P Capital IQ™s 4 STARS “Buy” ranking.

Analyst's Thoughts

Tobacco companies are known for their juicy dividend yields, and Altria is no exception, with its 3.4% dividend yield. Stocks in the sector tend to keep dividends high in order to attract investors that may otherwise shy away from the sector due for ethical reasons. The industry is also very mature, and growth is slow, which is another reason why tobacco companies keep dividends high in order to attract and keep investors. Altria has been growing its dividend for the last seven years, and despite having a payout ratio of 73.9%, investors should be rewarded with another increase when the company announces its next dividend this week. Last year the company boosted its dividend by 8.6%, and this year’s increase is likely to be in that same range. Look for the dividend to rise from $0.565 per share to around $0.61, which would translate to a 7.9% increase. Look for the announcement this week, with the stock trading ex-dividend mid-September.

Stock Only Trade

If you're looking to establish a long stock position in MO, consider buying the stock under $67.00. Sell if it falls below $60.50 or take profits if it gets to $77.00.

Bullish Trade

If you want a bullish hedged trade on the stock, consider a December 57.50/62.50 bull-put credit spread for a 35-cent credit. That's a potential 7.9% return (22.8% annualized*) and the stock would have to fall 6.3% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider a January 72.50/77.50 bear-call credit spread for a 20-cent credit. That's a potential 4.2% return (9.5% annualized*) and the stock would have to rise 8.7% to cause a problem.

Covered Call Trade

There are no covered call trades we like on the stock at this time.

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