This 7% Yielding Stock Has Grown Its Dividend for 55 Consecutive Years. Is The Streak About to End? 

As the stock market takes a dive and investors rotate out of the Magnificent Seven (and its like) and into boring defensives and proven dividend payers, the boring, neglected high-yielders may finally be worth a second look. Indeed, going for the higher yields could destine one for mediocre total returns, especially if the high-yield stock is of a firm that’s experiencing stagnant, or worse, negative growth.

In any case, such “cigar butt” stocks may still provide a decent value and relative stability in markets that head south for an extended period. Additionally, if such neglected stocks can hold their own in the face of rising tariff tensions, there’s more of a case to be a buyer in spite of any potential fundamental issues or secular headwinds that may not be so quick to be addressed.

Altria stock: 7% yield, 55 years of dividend growth

In this piece, we’ll look at Altria (NYSE:MO | MO Price Prediction), an old-time blue chip that may very well be the best-known name to command a dividend yield north of 7%. Over the past decade, shares of MO have gained just 14%. Meanwhile, the S&P 500 surged 178% while the Nasdaq 100 rocketed close to 360%. Sure, you would have collected a nice payout, but the share price ride over the past 10 years has been underwhelming, to say the least.

More recently, however, MO shares have looked interesting, with shares gaining close to 33% in the past year and 10% on a year-to-date basis. Suddenly, the perennial underperformer is now outpacing the broad markets while the high-flying AI stocks are now in a world of pain.

Indeed, a broad rotation towards value and away from growth is to thank for MO stock’s latest jolt. But can the rotation continue? And is the 7.2% dividend yield on good footing as we progress through what could be a recession year? Let’s find out.

Altria can and probably will extend its 55-year dividend growth streak

Altria’s dividend growth streak has lasted for more than half a century. And while it’s a proven dividend grower, its payout ratio is getting up there. While I don’t see the dividend as skating on thin ice, I do think that the firm must make good on its smoke-free transition as traditional cigarettes continue to find their way out in the U.S. market.

In any case, reduced-risk products (RRPs) are growing to comprise a larger slice of the revenue pie. As non-smoke products such as pouches and heated tobacco pens support cash flows in the future, the dividend growth streak could easily extend past 60 years, even if we’re dealt a recession or stagflation at some point down the line.

At the end of the day, Altria is a staple that isn’t inclined to wobble as much as the market — 0.61 beta — as new tariffs send shivers down the spines on investors. Combined with a modest valuation (8.8 times trailing price-to-earnings (P/E)), newfound share price momentum, and the huge dividend, MO stock may very well be a defensive that can hold up should the latest correction have more room to the downside.

How about the long-term health of the dividend growth streak?

It’s hard to argue against MO stock being a great defensive to own right here. However, there are risks to the dividend growth streak if management fumbles the ball on RRPs. Perhaps future generations will be inclined to eliminate their risk by not using tobacco products rather than staying hooked on RRPs, which, while better than smoke products, still carry health risks.

Should regulatory hurdles be put forth in the future, doubts could grow about RRPs’ ability to offset the secular decline of cigarettes. Though the dividend growth streak is at risk of ending anytime soon, the magnitude of dividend growth could stall if the payout ratio were stretched to its limits.

In any case, one has to think management would do everything in their power to keep that historic streak alive, even if it means making cuts elsewhere to shore up cash flows. Just because the streak can live on doesn’t mean MO stock is a great buy. The growth-to-value rotation could be short-lived. And if investors feel like taking risks in high flyers again, MO stock could be at risk of a near-term pullback. Either way, I’d be careful with the name as risk-off investors chase the name higher in what’s been quite the risk reversal.