Altria Group, Inc. (NYSE:MO) witnessed a surge in options trading activity on a recent Wednesday, with 11 puts or calls exhibiting unusual options activity. This level of activity, not seen for two years, has piqued interest among investors. The put/call ratio was remarkably low at 0.02, suggesting that investors may have primarily been acquiring long-duration calls, a bullish indication.
However, while the options trading activity is intriguing, it’s essential to assess Altria’s investment merits from a fundamental perspective. Altria is renowned for its generous dividend yield, with an annualized rate of $3.92, yielding 8.9%. The company has a remarkable track record of dividend increases, having raised its dividend for the 58th time in the past 54 years, making it one of the select S&P 500 companies with over 50 consecutive years of dividend increases. Additionally, Altria’s shareholder yield, which combines dividend yield and buyback yield, is 10.4%, outperforming many other firms in the index.
Despite the prevailing high-interest rates, Altria’s dividend yield remains appealing. For investors comfortable with so-called “sin stocks” like Altria, the combination of a robust dividend yield and consistent share repurchases makes MO a compelling option. Over the past five years, MO stock’s total return is relatively flat, thanks to its reliable dividends, mitigating the impact of the share price decline.
Altria has ventured back into the e-cigarette market with its acquisition of NJOY Holdings for $2.75 billion, along with potential earnouts. This acquisition is in line with Altria’s “Moving Beyond Smoking” business strategy, aimed at helping adult smokers transition to smoke-free alternatives. The company has four product segments in its smoke-free offerings: Smokeless Tobacco, Nicotine Pouches, E-Vapor (NJOY acquisition), and Heated Tobacco products through its joint venture with JT Group.
The e-vapor category alone generated $7 billion in U.S. retail sales in the past year, presenting a significant growth opportunity for Altria. The company aims to achieve $5 billion in revenue from its smoke-free products by 2028, with the acquisition of NJOY expected to contribute to this goal.
While Altria is a controversial stock due to its history in the cigarette business, the potential of its smoke-free products combined with its cash flow from smokable products makes it an attractive contrarian investment.
In conclusion, Altria appears to be a favorable long-term investment, primarily due to its attractive dividend yield and growth potential in its smoke-free product segments. Among the 11 unusually active options from the recent trading session, two stand out as potential choices for investors: a put with a $47.50 strike price and a June 21, 2024 expiry and a call with a Jan. 17, 2025, $35 strike. Both options provide ample time for Altria’s strategic initiatives to unfold and could offer investors favorable entry points.
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