Tobacco company Altria Group (NYSE: MO) has long owned a 10% stake in Anheuser-Busch InBev, the world’s largest beer company. That stake is worth approximately $12 billion today. Recently, Altria announced it was selling up to 40 million of the 197 million shares it holds.
What does this mean for shareholders? I’ll give you a hint: Investors should be celebrating this news because they’re about to see more cash coming from Altria.
Here are all the reasons to love Altria’s decision and why the stock is a buy on this news.
1. Altria is significantly boosting share repurchases
Most people know smoking cigarettes is a dwindling habit in the U.S. where Altria conducts virtually all its business. Yet, smokeable products make up the vast majority of revenue and profits. Altria has managed to offset its volume declines with price increases while using profits to repurchase shares and sustain earnings growth over the years. Altria’s share count has declined 11% over the past decade.
MO Shares Outstanding Chart
Altria is selling these 35 million shares to raise money for more aggressive repurchases. Management has already announced that it expects $2.4 billion in sale proceeds and is dedicating it all to buying back shares on top of the company’s existing $1 billion repurchase program. This has multiple benefits for shareholders.
2. Fewer shares help support the dividend
First, it means Altria owes a dividend on fewer shares. The stock yields a whopping 8.8% as of this writing. Retiring shares reduces the dividend obligation in terms of absolute dollars. Cash going toward stock buybacks essentially returns 8.8% at a minimum because Altria no longer pays the dividend on those shares.
This will also help Altria keep growing its dividend over time. The company could maintain its total dividend payout, and the per-share dividend would still increase due to fewer outstanding shares. Management said in a recent press release, “We remain committed to our progressive dividend goal that targets mid-single digits dividend per share growth annually through 2028.”
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