Should You Invest in Altria Stock for Its 6.7% Dividend?

With the stock market trading at highs, it can be hard to find some good dividend stocks. After all, when stock prices rise, yields decline. That means finding an investment that pays 6% or better can be rare, especially if you're looking for a safe stock to invest in.

One company that still offers a high yield is Altria Group (NYSE:MO). With a quarterly payout of $0.86 per share, investors who buy the stock today are earning a yield of 6.7%. That's well above the S&P 500 average, which is around just 1.5% right now.

But is Altria's payout too good to be true?

In 2020, the company generated per-share earnings of just $2.40. That is well below what its annual per-share dividend would come out to be: $3.44. At over 140%, its payout ratio raises alarm bells. However, net income includes non-cash items and it sometimes doesn't present the best picture of whether a company can afford to continue making dividend payments. That's why it's also important to factor in a company's free cash flow.

Altria generated free cash of $8.2 billion last year, which is comfortably ahead of the $6.3 billion that it paid out during that time. The company even felt comfortable paying down $4 billion in debt in 2020. Currently, the business still looks to be in solid shape to continue paying and even increasing its quarterly dividend payments. The last hike was an increase of two cents.

In the past year, shares of Altria have risen more than 40%. That, combined with its high yield (which still looks safe) makes this stock an attractive buy for income investors.