Last week, markets returned to volatility with the VIX closing at its highest level since the markets were roiled in early fall. When markets turn volatile, I look to commit cash toward a stock with a healthy dividend. It does not hurt if the company has healthy operational metrics in addition to safety. Altria (MO) meets these criteria with some additional notes on safety.
Altria has a dividend yield of just under 4%. Over the past four years, the company has steadily increased its dividend in par with earnings growth, resulting in a quarterly payout ratio between 75% and 85%. In addition, the company has seen an improvement in free cash flow on a trailing 12-month period in par with its growing dividend obligation.
In addition to a healthy ability to pay its dividend, Altria is demonstrating healthy operational metrics. The company has improved its return on assets from 11% in 2012 to 17% in the most recent quarter. Additionally, its return on invested capital (earnings less dividends) has improved from 9% in 2012 to 13.5% in the most recent quarter.
Altria's good operational performance is expected to continue as it is projected to grow earnings by 6% per year through 2017. At $56 per share, the company is trading at slightly more than 18x 2016 earnings and 17x 2017 earnings. Essentially, Altria's earnings yield (between 5% and 6%) is trading close to its actual earnings growth. While that does not guarantee a particular outcome, it's safe to forecast 6% annual share price appreciation in addition to the 4% dividend yield for shareholders.
Finally, one metric that separates Altria from other high-yielding S&P 500 companies is its beta. Altria currently has a beta of 0.58. Betas of under 1 tend to have limited downside in relation to the downside in the market. A beta of 0.58 suggests that for every percentage point the market falls, Altria stock will only sell off 0.58%. This combination of safety, dividend income and earnings growth makes Altria a good pick in uncertain times.