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High-Yield Altria Offers Exposure to Budding Industry

High-Yield Altria Offers Exposure to Budding Industry
(Ovydyborets/Dreamstime)

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Friday, 09 August 2019 04:32 PM Current | Bio | Archive

The marijuana boom is just taking hold in the U.S., with few signs of slowing down. Over 30 states have legalized marijuana usage either medically and/or recreationally, and it is likely next year will see an expansion of legalization in additional states.

Investors might naturally want to know which stocks will capitalize on the marijuana boom. There are a variety of ways investors can gain marijuana stock exposure, either directly through marijuana producers and retailers, or indirectly through pharmaceutical or consumable products.

Some investors might find marijuana pure-plays to be too risky, and indeed many companies are struggling to report a profit, as the industry remains in its infancy. But Altria Group (MO) is a very stable company with strong profits, a high dividend yield, and it provides exposure to the marijuana industry.

Altria Takes a Step in a New Direction

Investors likely know Altria as a tobacco giant, because of its flagship Marlboro brand which commands over 40% retail market share in the United States. But in recent years, Altria has made strides to diversify its business, as cigarette sales have declined for an extended period. Altria expects cigarette volumes to decline up to 6% this year, which poses a problem for its future growth.

As a result, the company has expanded into smokeless products such as its chewing tobacco brands Copenhagen and Skoal, a wine business under the Ste. Michelle brand, and it acquired a 10% ownership stake in global beer giant Anheuser Busch InBev (BUD).

But Altria didn’t stop there. It recently acquired a 35% ownership interest in e-vapor giant JUUL, and made its first foray into marijuana with a nearly $2 billion investment in Canadian marijuana producer Cronos (CRON). Altria acquired a 45% stake in Cronos, which gives Altria a fast-track in distribution of marijuana products in Canada as well as the United States.

The outlook for recreational marijuana is still somewhat murky in the United States. While many states have legalized recreational use, marijuana remains illegal at the federal level.

This makes U.S. companies extremely wary to enter the category. However, if and when federal legalization occurs, Altria is in prime position to capitalize—and quickly. Altria’s sourcing and distribution infrastructure is set up perfectly to handle marijuana. And, due to the leadership position of its core Marlboro brand, Altria already commands optimal shelf space at retailers and gas stations.

The investments in JUUL and Cronos may be a necessity, as consumers are gravitating away from traditional cigarettes. Due to the perception of fewer harmful health effects, consumers are latching onto adjacent categories such as e-cigarettes and marijuana. Philip Morris International (PM) received received FDA approval for IQOS heated tobacco products in the U.S. in April. Altria will sell IQOS products in the U.S. this summer.

Gain Exposure to Marijuana While Collecting a High Yield

It is likely many income investors will find marijuana stocks to be undesirable. After all, most marijuana producers are not profitable, and do not have the resources to pay a dividend even if they wanted to.

But Altria is a highly stable company, with consistent cash flow and a long history of dividends. Altria stock has a nearly 7% dividend yield, and the company has increased its dividend 53 times in the past 50 years. Altria is a top stock for income investors, with exposure to a new high-growth category.

(Disclosure - I am long MO).

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

© 2019 Newsmax Finance. All rights reserved.

   
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BenReynolds
The marijuana boom is just taking hold in the U.S., with few signs of slowing down. Over 30 states have legalized marijuana usage either medically and/or recreationally, and it is likely next year will see an expansion of legalization in additional states.
altria, high yield, budding
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2019-32-09
Friday, 09 August 2019 04:32 PM
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