Altria: Why I Have Stopped Reinvesting In This Dividend King (Rating Downgrade)

Performance and Investment Strategy - Altria Group (NYSE:MO) has been one of the best-performing investments in 2024, with total returns (including dividends) up by almost 30% [1] - After a follow-up article in June, the total returns reached ~12%, outperforming the S&P 500 by about 10% [1] - The stock initially dropped ~5% after the Q2 2024 earnings report but has since recovered to pre-report levels [1] - The decision has been made to stop directing additional capital towards increasing the position in Altria, including shifting dividends to other income-generating allocations, but no divestment of shares is planned [2] Q2 2024 Earnings Overview - Adjusted diluted earnings per share (EPS) remained unchanged in Q2 2024 compared to Q2 2023, in line with management's guidance [4] - Earnings growth is expected in the second half of 2024, with adjusted diluted EPS projected to increase by 2.5% to 4%, reaching a range of $5.07 to$5.15 [4] - The growth trajectory is consistent with British American Tobacco (NYSE:BTI) and aligns with U.S. sector-wide inventory cycles and additional shipping days in H2 2024 [4] Segment Performance - The smokable products segment saw a 2% decline in adjusted operating income in Q2 2024, despite a 13% decline in domestic cigarette volumes, indicating strong margin protection [4] - The oral tobacco products segment grew by 1.8% in adjusted OCI compared to Q2 2023, with nicotine pouches expanding by 12.3 share points year-over-year, now representing almost 42% of the category [4] - NJOY, acquired in June 2023, received FDA marketing granted orders for menthol e-vapor products and launched the NJOY ACE 2.0 device, contributing to a 14.7% increase in consumables and an 80% increase in device shipment volumes [4] - NJOY's retail share for consumables increased by 1.3 share points to 5.5%, while device share more than doubled from 11.6% in Q1 2024 to 25.4% in Q2 2024 [4] Capital Structure and Financial Health - Altria's debt to EBITDA ratio remains strong at 2.1x, with a focus on maintaining an investment-grade credit rating [4] - The company prioritizes a strong balance sheet to support shareholder interests and manage cash outflows effectively [4] Valuation and Growth Prospects - Altria's forward P/E multiple has expanded to 10x, slightly above the 5-year average, while British American Tobacco trades at a more attractive forward P/E of 7.7x [6] - The growth prospects for Altria remain stable and slightly positive, but the position has already appreciated by ~30%, leading to a decision to assign a hold rating [6] Dividend and Financial Outlook - Altria continues to offer an attractive dividend yield of ~7.7%, supported by solid financial prospects [5]