I’m tired of hearing about Apple, Inc. (NYSE:AAPL). If I was an investor in said company, I’d be pretty disappointed with the company’s -3.8% performance in 2015. If you’re interested in a stock that actually makes its investor’s money, and is, according to the “Wizard of Wharton” Dr. Jeremy Siegal, the greatest performing stock of all time, look no further than Altria Group, Inc. (NYSE:MO). Why? Over the last half century, Altria stock has rewarded investors with annual average growth in excess of 20%.
Altria Group Inc Blow Away Competition
If you don’t like sin stocks you’re not going to like Altria Group. But, if you don’t mind sin stocks and to like to make money, then perhaps you might like adding Altria to your investing portfolio.
In a nut shell, Altria Group is the largest cigarette maker in the U.S., capturing roughly half of the U.S. cigarette market share. The company has a market cap of $115.0 billion and provides an annual dividend of 3.89% or $2.26 per share.
For the five years ended December 31, 2014, Altria’s total shareholder return was 230.4%; outperforming the S&P 500s return of just 105.1%. For income starved investors, Altria has increased its dividend 48 times in 46 years.
In 2015, a year where the S&P 500 was flat and Apple gave up almost four percent of its value, Altria Group rewarded investors with a 23.0% gain. In fact, over the last half century, Altria has delivered average annual returns in excess of 20%. If you want to ride a roller coaster, the S&P 500 has la long-term annual average of just 11.82%.
The Wages of Sin is Wealth
If you had invested $1,000 on the first day of trading in 1970, today your investment would be worth $679,277. If you didn’t have $1,000 and only invested $1.00, today you’d have $679.28. Or, if you purchased just one share back in 1970, today your investment would have ballooned to $5660.
It’s not enough to just buy a stock like Altria Group with a great dividend, you need to reinvest your dividends. And hold on for the long run. As an added bonus, Altria also offers a great DRIP and DSPP program.
A report published by Credit Suisse looked at the performance of every major American industry from 1900 to 2010. One dollar invested in the average American industry was worth $38,255 by 2010; an annual return of about 10% per year. (Source: Credit Suisse Global Investment Returns 2015, credit-suisse.com.)
Naturally, some industries did better than others. One dollar invested in food companies was worth approximately $700,000 by 2010. Chemical and electrical equipment companies did about the same.
Then there’s the addictive allure of tobacco. One dollar invested in tobacco stocks in 1900 was worth $6.2 million by 2010.
Altria is the Perfect Buy and Hold Stock
Why does Altria continue to do well in the face of falling smoking rates, unit sales, tight advertising rules, and litigation? Therein lies the beauty of Altria Group. It’s good to be bad. On many levels.
In his 2005 book, the Future for Investors, Jeremy Siegel says that Altria, the former Philip Morris (NYSE:PM), was the best performing stock from 1925 through 2003.
Siegel believes that the price of the stock was held down by investors’ fear of litigation and declining smoking rates, etc. As a result, investors in Altria were able to buy MO’s steady earnings growth for bargain prices.
What matters most when it comes to long-term returns is not the actual growth of earnings but how those earnings compare to what investors expected. Investors had minimal growth expectations but the company continued to report decent earnings.
On top of that, the company paid out a regular dividend and raised it annually. High dividend yields compound over the years and result in massive returns.
So, while companies like Apple Inc. have to spend billions to create new innovative products that last for five years, for the most part, Altria keeps on churning out the same product. That doesn’t mean stagnate. Altria wisely delved into the e-cigarette market.
Not an earth shattering development. But it does help Altria do what it does best. Report solid (some might say mediocre at times) returns quarter after quarter for a long period of time. It might be boring but it’s better than the carnival ride Apple investors have been on.