Altria (MO): A 'Dividend Machine'

"Over the last few years, the company has divested itself of the Kraft Foods division and the Philip Morris International division in attempt to focus its attention on the U.S. tobacco market. But Altria still boasts a wide corporate wingspan.

"Its operating companies include:

• Philip Morris USA, the largest tobacco company in the U.S., controlling half of the country's cigarette market's retail share.
• U.S. Smokeless Tobacco Company, which manufactures and markets smokeless tobacco products.
• John Middleton, a leading manufacturer of machine-made large cigars and pipe tobacco.
• Ste. Michelle Wine Estates, which ranks among the top 10 producers of premium wines in the United States.

"Philip Morris Capital, an investment company whose portfolio consists primarily of leveraged and direct finance lease investments. The company also maintains an economic and voting interest in SABMiller, one of the world's largest brewers.

"The company is trading at 12.56 times earnings -- a 35% discount to the S&P 500's P/E ratio. Altria's forward P/E is an even more attractive 9.59. And the PEG ratio is a solid 1.30, which means the stock is rising roughly in line with its growth prospects. What's more, as of the end of 2009, the company is sitting on over $1.8 billion of cash.

"And management knows exactly what to do with all that money... and how to make even more of it. Altria's profit margins are in the double digits, at 19.06%. That crushes the entire consumer goods sector by a whopping 181%.

"And the company's Return on Equity (ROE) checks in at more than 90%. This is huge. It suggests extremely competent management, which we know nearly always leads to above-average investor returns.

"Altria also comes with a built-in currency hedge. It's fashionable to knock the U.S. dollar as of late. But the problems emerging in Portugal, Italy, Ireland, Spain, and, most notably, Greece, have lifted the hood on problems inside Europe and, subsequently, the euro.

"Why does that matter for Altria? It's simple. The company's revenues are derived mainly in the United States and therefore are in U.S. dollars. And with trouble in Europe, traders are moving into dollars as a safe haven.

"While it may sound crazy to think of the greenback as a "sound" or "safe" currency, it is the best available choice compared to the euro or the Japanese yen – the only two other currencies in the world with enough liquidity to absorb the move.

"And that gives Altria's U.S.-dollar-based revenues an edge over competitors who receive revenue from European markets. This is not quite the hedge that Asian currencies provide, but a hedge nonetheless. This advantage may not last forever, but it should benefit us in the near term... and perhaps even longer

"Action to Take: Buy Altria Group Inc. at market and tuck it away in the Growth and Income segment of our portfolio. Use our customary 25% trailing stop."

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