Altria: A Cash Cow With a Generous Dividend Policy

For those of you who haven’t noticed, Altria Group, Inc. (MO) has been quietly beating the S&P 500 over the past few years. Much has already been written about the virtues of its generous and ever increasing dividend. However, as a business valuation professional, I am always interested in understanding what the financial statements can tell us about the value drivers of a business. So I decided to do a little research to see what I could learn. One useful analytical tool that is frequently used in the valuation world is the DuPont Formula. The DuPont Formula is simple way of breaking down a company’s return on equity (ROE) into its various components: profitability, asset management and leverage. ROE is generally viewed as an important indicator of how effectively a company generates a return to shareholders. The formula is as follows: ROE = (Net Income/Revenue) * (Revenue/Total Assets) * (Total Assets/Equity) The first component (Net Income/Revenue) tells us how much profit is earned for each dollar of revenue generated. The second component (Revenue/Total Assets) tells us how efficiently a company generates revenue based on its assets employed. The third component (Total Assets/Equity) gives us an indication of how much leverage or debt is utilized to generate returns.... Read more

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