Generating income from dividends can prove very satisfying and rewarding. After all, you receive regular payments from your investments, as long as you pick reliable dividend-paying companies.
Altria Group (MO 0.06%) has made a commitment to returning cash to shareholders. The company states it prioritizes consistently growing dividends, targeting a mid-single-digit percentage annual increase.
With some basic math, it’s easy to figure out how many shares you’d need to own to generate $500 in annual dividends. From there, you can calculate the investment necessary.
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Number of shares needed
Altria Group started paying a quarterly dividend of $1.02 per share in October, up from $0.98. That works out to $4.08 per year for each share of Altria stock.
Dividing the $500 by $4.08 equals about 123 shares, assuming the board of directors pays the same dividend rate. If Altria Group continues increasing payments, you’d receive more than $500 per year. The 123 shares would cost more than $6,400, based on the stock’s closing price on Dec. 31, 2024.
Altria’s investors will receive a high 7.8% dividend yield, which is more than six times the S&P 500‘s yield of 1.3%. The index serves as a proxy for large-cap stocks like Altria.
Is the company’s dividend sustainable? Altria produces and sells tobacco products (e.g., cigarettes) in the U.S., and that’s a challenging business.
Smokeable-products (cigarettes and cigars) volume fell 10% through the first nine months of 2024 to 53.3 million. Additionally, the company’s core Marlboro product’s market share was 41.7% at the end of the third quarter, down from 42.3% a year ago.
Altria currently generates enough free cash flow (FCF) to support dividends. Its year-to-date FCF of $5.3 billion covered the $5.1 billion in dividends.
However, while third-quarter diluted earnings per share under generally accepted accounting principles (GAAP) grew 9.8%, Altria’s revenue remained weak, growing only 1.3%. While Altria’s dividend appears safe, it’s difficult to invest when the company’s core smokeable-products business remains under pressure.