When we invest, we make choices to invest in some companies and not others. Sometimes we pick companies because they are local , you love their product(s), they are great generators of cash and profits. One of the companies which has been and is a great generator of cash is Altria which sells cigarettes.
Whether you smoke or do not, smoking is still legal and people do it. It is true smoking rates in the US has fallen 4% over the past year, compared to the normal 3% decline. Altria spent almost $13 billion to own a 35% share in Juul Labs the leading e-cigarette maker or vaping.
In an article by David Berman, he examined the bond market because with the bond market, the biggest issue is can the company generate enough cash to pay back the bonds with interest? At the moment the bond market investors are not worried about health concerns and Altria. S&P Global Ratings and Fitch Ratings cut their ratings to BBB from A# after Altari financed its $13 billion with Juul. S&P noted the investment in Juul would not bring an meaningful return to Altria for a couple of years.
Altria remains wildly profitable, with price increases on cigarettes offsetting declining smoking rates. In the second quarter, the company reported a profit over nearly $2 billion up 6.4% from last year.
Altria 10.1% in InBev grew by 46% to $19 billion or 2/3s of the Altria’s debt.
The company distributes 80% of profit to shareholders and now pays 84 cents a shares quarterly up from 80 cents.
Linking to dividend paying stocks, in the past cigarette companies have paid penalties for smoking related diseases to states but those lawsuits are over. The company is profitable and as long as it is legal, pays very good dividends.
There are more questions than answers, till the next time – to raising questions.