﻿The Altria Group, ticker symbol $MO, just paid me $304 in dividends. This is my largest payment ever
from my long-term dividend growth stock portfolio. I reinvest these dividends to increase my future
dividend income. This powers the dividend snowball effect. In this video, I’m going to share the
power of dividend reinvestment and whether or not I think Altria stock is a good buy right now.
My name is Zach, this is Dividend Data, and should leave a like and
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content is now available on Spotify. Please give it a follow and good review to help spread the
show. Now let’s get back to the video. Altria stock is a dividend king, meaning the
company has increased its dividend payment on an annual basis for over 50 years. The forward
looking annual dividend payment is $3.76. At current stock prices, that is an 8.36% dividend
yield. It is a high yield payer with reliable slow growth of both free cash flow and dividends.
In my dividend portfolio, Altria is the top payer. It’s projected to generate $1,273.87 in annual
dividend payments. On July 10th, Altria just paid me $304.37. This is significant passive income,
which I’m reinvesting to buy more shares of the company. That will increase my future dividend
income, allowing me to buy more shares, creating a virtuous cycle. This is what us dividend investors
call the Dividend Snowball Effect. With my Altria stock, I already have 24.79 shares
directly earned from reinvesting dividends. That’s $1100 in current value and an additional $93.21 in
annual dividend income. This boosted my dividend yield on cost by 0.68%, giving me a 9.31% yield.
That will only continue to grow as my latest $304 dividend payment will acquire at least 6.5 more
shares. This is the snowball effect at work, powering a big part of your long-term return.
On top of dividend reinvestment, Altria has reliable dividend growth. Over the past 10 years,
the dividend CAGR is 7.89%. This has slowed down with the latest increase being 4.44%. Moving
forward, the Altria Group CFO says investors should expect mid single digits dividend
growth. This is sustainable as the dividend payout ratio is around 80% of free cash flow.
The combination of investing new capital, reinvesting earned dividends, and dividend
growth has increased my Altria dividends significantly. Here you can see my full history
of payments with the stock. My first dividend was $6.71 all the way back in April 2020. Now,
it’s growing well north of a $300 quarterly dividend. It’s not unreasonable that this will
soon become $500, $750, $1,000 and so on. In fact, I built out a model on my website
dividenddata.com to forecast out the impact of reinvesting dividends. I just entered the current
stock price and dividend of Altria, with a rather conservative projection for a 4% dividend CAGR and
6% stock price CAGR. With a one-time investment of $15,000, roughly modeling my current ownership,
and reinvesting dividends, the results are stunning. After 5 years, the total
projected value is $29,585 with over $2,000 in annual dividends. At 20 years, the total value
is $186k with annual dividends is $9k. After 35 years, the total value is roughly $917k with $35k
in annual dividends earned. That would be a 234% dividend yield on initial cost. This is of course,
assuming the given growth rates hold true. It also does not include taxes paid on dividends.
The reason for this huge long-term compounding is the impact of reinvested dividends. Just look at
these graphs. In each the gap between reinvesting and not reinvesting dividends is massive. This is
because you quite literally are increasing your ownership stake in the company by reinvesting
earned dividends. Just look at the step by step version of the model. Each quarterly dividend
gives you more shares. Look at the growth of total shares over time. Starting with 333 shares,
you’d be at 455 by year 5. By year 20, you have 1,200 total shares and are earning 16
every quarter. This only continues to grow. A model like this is only as good as its
inputs. In reality, it could vary dramatically and is highly dependent on the performance
of the company. However, it highlights the true power of the dividend snowball effect,
which is only revealed on a long time scale. So, is Altria stock a good buy right now? Well
I think so based on its low valuation and reliable low growth. I’m going to calculate intrinsic value
using the dividend discount model. Measured against a 10% discount rate, over 35 years,
and a 4% growth rate estimate then it shows the stock is about 20% undervalued. If I up
the dividend growth CAGR to 5%, then it shows the stock is 29% undervalued. In my opinion,
this is a large margin of safety where I think Altria stock is a strong buy. I
will continue to add to my position and reinvest dividends around this current price range.
If you’ve enjoyed the video leave a like and subscribe on YouTube, and review on Spotify.
Make sure to watch my latest portfolio update video to see my entire dividend portfolio. You
can gain access to the stock research tool I used in the video by becoming a member at
DividendData.com. Link in the description and pinned comment. If DividendData.com helps you
discover just 1 slightly better stock, then it pays for itself. Thanks for watching!