Tobacco giant Altria Group (NYSE:MO) pays one of the highest dividend yields available at around 7.2% annually. On a $15,000 investment, that could generate over $1,000 for your portfolio on annual basis. It's a significant amount of money on a modest investment but the danger many investors are likely worrying about is whether it is safe or if the company my cut its dividend.
Dividends, are, after all, discretionary and by no means a guarantee.
However, Altria is a Dividend King and it has raised its payouts for 51 years in a row. With a track record like that, it would take a lot for the company to break it. In 2020, Altria generated free cash flow of $8.2 billion – well above the $6.3 billion that it paid out in dividends during the year. But the company does have some significant obligations to worry about, including $28 billion in long-term debt on its books; last year, it paid down $4 billion in debt but issued another $5 billion.
While the dividend yield looks attractive, Altria is a company that faces many challenges ahead with respect to growth -- revenue of $20.8 billion in 2020 was only 8% higher than the $19.3 billion the company reported in 2016. Its dividend looks like it should be in okay shape for the short term but that may not be enough of a reason to buy this stock as if it continues to underperform, the losses from the share price could offset any income you earn from the dividend. Over the past five years, shares of Altria have fallen more than 27%, vastly underperforming the S&P 500, which has doubled during that time frame.
