Last week, Blue Apron (APRN) found an ingenious way to lift its share price. The company announced a 1:15 reverse stock split. Of course, a reverse split doesn’t add a dime to shareholder value.
You simply own one share now for every 15 you used to own, meanwhile the share price jumps 15 fold. In the end, no value is created. But here’s the odd thing. After APRN did its reverse split, the shares jumped 15% at the open.
It didn’t last. By the end of the day, the shares closed down. Again.
The only reason Blue Apron did this reverse split was to shake off the stigma of being a penny stock. Not too long ago, APRN got down to 55 cents per share (pre-split). Yikes!
Being a public stock has been a massive headache for Blue Apron. Two years ago, the company hoped to go public at $17 per share. Instead, they got priced at $10 per share. Even that was way too high. Ever since, it’s been down, down, down.
Having to do a 1:15 reverse split is a good sign that things aren’t going too well for you. But that got me thinking as to which stock is the opposite of Blue Apron. Who’s the anti-Blue Apron, if you will?
After going through the contenders, the obvious choice is the tobacco stock, Altria (MO).
The long-term track record for Altria is phenomenal. From early 1970 to mid-2017, Altria gained, with dividends, close to 1,000,000%. That’s not a misprint. One Million Percent.
There are a lot of people who shy away from tobacco stocks. I understand. It’s not the most pleasant business, but that’s probably why the stock has done so well. Investors have low expectations for the business, yet results continue to be good. As a result, the stock climbs higher and higher.
Since 1970, MO split 2:1 three times. Plus, there was a 4:1 split and a 3:1 split. Add it all up and it comes to 96:1. (The last split came more than 20 years ago.)
Today Altria is one of the largest tobacco companies in the world. It’s not to be confused with Philip Morris which is its former name. The present Philip Morris (PM) is a separate company. To make things especially complicated, Altria owns Philip Morris USA. The company also owns Chateau Ste. Michelle, a winery in Washington State.
The stock is reasonably priced. Right now, Altria is going for about 10 times next year’s earnings estimate. That’s a big discount to the S&P 500. Not only that, but earnings may even be better than estimates.
A 6.5% Yield and 49 Straight Dividend Hikes
What I really like about Altria is the constant and steady dividend. The company currently pays about a dividend of 80 cents per share. Annualized that’s $3.20 per year. At the current share price, Altria yields about 6.5%. That’s more than three times what the average stock yields. It’s also a lot better than you can find anywhere in the Treasury bond market.
I’m not too worried about Altria’s dividend. For one, the company has raised its dividend every year for the last 49 years in a row. This August, I expect Altria to announced its 50thconsecutive dividend increase.
For Q2, Wall Street expects Altria to report earnings of $1.10 per share. That’s enough to cover the dividend. The earnings report will be coming out towards the end of July. I think there’s a good chance we’ll see a modest earnings beat.
There’s another good reason to like Altria. The company owns a 45% stake in Cronos Group (CRON), a Canadian marijuana company. Altria has the option to raise that to 55% in four years. An analyst at Wells Fargo recently said she was impressed with CRON’s footprint across Canada.
I should add that this is an especially good time to give Altria a close look because the stock has lagged the broader market. Over the last two years, the S&P 500 is up 19% while shares of MO are down 26%.
When you see a stock paying a 6.5% yield in this market, you can see the long-term odds are in your favor.
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