A Dividend King is a stock with an incredible track record for raising its payouts, doing so for at least 50 years in a row. Tobacco giant Altria (NYSE:MO) belongs to that group and last week, it announced yet another increase in its payouts. Its next dividend, which it will pay in October, will be for $0.94 – four cents higher than the $0.90 it was previously paying shareholders. That amounts to a 4.4% increase and this will be the 57th time the company has raised its dividend payments in the last 53 years.
Annually, that will put the dividend at $3.76 and the stock is now yielding 8.2%. That's an incredibly high yield when you consider the average S&P 500 stock pays just 1.5%. That means with a $25,000 investment in Altria, you could be collecting close to $2,050 per year just in dividends. By comparison, a 1.5% payout would only generate $375.There's a big incentive for income investors to buy Altria just for its stable and recurring dividend.
However, over the past five years, shares of Altria have fallen 28%. And the company's future isn't all that clear as the Food and Drug Administration is looking to ban the sale of menthol cigarettes and it also wants to ban Juul's e-cigarettes. Altria invested nearly $13 billion in Juul back in 2018, in a move that clearly hasn't paid off for the tobacco maker with it writing that investment down multiple times since then.
Altria is an intriguing income investment, but it comes with some risk, and investors should be careful in assuming that the high yield will continue as its payout ratio is over 300%.
