Investors Quit Smoking As 2012 New Year Resolution (MO, LO, RAI, PM)

It was not that long ago that Altria Group Inc. (NYSE: MO) was removed from our 2012 Model Dividend Portfolio.  Our take was that the metrics of the domestic tobacco industry were changing to where the only way that earnings can grow is if cigarette companies start raising prices at a faster pace than the case volumes are falling.  This is the only way that Altria and other can grow that dividend.  We may be early by a year, but the reality is that we would not become excited about Altria unless shares were to come back down to $27 or even $26 before giving it a visitation again.

We did not substitute Reynolds American Inc. (NYSE: RAI) nor Lorillard, Inc. (NYSE: LO) for Altria in the dividend portfolio because of the industry woes being present.  As far as Philip Morris International, Inc. (NYSE: PM), it has other issues like currencies to deal with, as well as having a lower dividend rate and even some nations increasing their legal actions against tobacco.

apparently Barron’s feels the same in the concerns.  We expected the cover story this last weekend to be about all of the outlooks for a better 2012 or something more broad.  Instead, the cover story was “Up In Smoke” with the note that Altria’s prospects are low with the cigarette sector outlook being bad and with Marlboro losing market share as cheaper brands are winning out.

Barron’s take… Altria could fall 15%, and with shares having been around $30.00 that could take the stock back under $26.00.

Altria shares are trading down 3.3% at $28.67 after a $29.65 close on Friday.  Apparently investors are giving up on smoking for a new year resolution as well.

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JON C. OGG