My Altria article posted on Seeking Alpha

My Altria article has been posted on Seeking Alpha and can also be seen here for those who want to follow the discussion in the comments section.

When I first started reading about Altria (NYSE:MO) its dividend is what initially got me very intrigued. Altria was the first company that I bought where I actually read an annual report so it was my starting point for the research I am doing now. However, I was not doing any type of valuation or near the amount of research I am doing now so I got a bit lucky that my position is now up around 30%. I started doing this write-up and research of Altria mainly to see how far I have come since I originally bought.

However, now that I have just read its most recent 10K and 10Q I have found many things that bother me about the company.

First I will give the reasons why I originally bought more than a year ago:

  • Big dividend in a low yield environment, the dividend has been growing as well.
  • Huge competitive advantages that I noticed even then: Addicted customers who were willing to keep paying higher and higher prices. A government sponsored mini-monopoly since there aren’t likely to be any new entrants due to litigation and taxes. Massive brand recognition and market share.
  • They were producing about $3 billion in FCF per year, which I thought was enough to cover the dividend.

Risks I saw then:

  • Massive debt load over $12 billion.
  • Litigation expenses.

Those were literally the only two concerns I had, and the only major concern of the two was the debt. Altria seems to win a lot of its lawsuits or if they do lose, they end up having the amount to be paid out cut substantially, so that did not worry me too much.

The above is literally the only things I looked at before deciding to buy MO last year. Not very in-depth thinking, and definitely not enough to get me even close to a buy or sell decision today.

Analysis now

Altria comprises Philip Morris USA, U.S. Smokeless Tobacco Company, John Middleton, Ste. Michelle Wine Estates, and Philip Morris Capital Corporation. It also owns a 27.1% interest in SABMiller, the world’s second-largest brewer. Through its tobacco subsidiaries, Altria holds the leading position in cigarettes and smokeless tobacco in the United States and the number-two spot in cigars. The company’s Marlboro brand is the leading cigarette brand in the U.S.