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MO Evaluation and Reasoning


Article posted on 8th November, 2015
 
Initial purchase made on 26th , August 2015 for ~5% of portfolio for $52.11
 
Originally purchased Altria in a week of Turmoil when many stocks were going at fire-sale prices.
 
With the shadow of rising rates in December, I am staying in Atria for now.

Reasoning:
    Altria is a strong dividend stock and has been for years.   If you look at tabacco industry in general throughout the history of the stock market, tobacco firms have always been extremely profitable.  This holds true even in times when many were warning of impending doom for the tobacco industry1.     At the time of purchase, the stock had a yield of about 4% and was due for another dividend increase.  For many Altria is much like a utility that serves as a good proxy for fixed income options because of its reliable and predictable yield when interest rates are low.  Now, during a time when the Fed is very likely to start raising rates (October job numbers coming in at 271 K when 180 K was the concensous estimate), it is believed that there will be movement out of the MO, Utilities and other like stocks as rates rise.   The stock over the last few days has been moving lower on that expectation.  I am staying in however, because, although I believe it is a correct assumption that rate hikes directly impact the appeal of stock like MO, It is important to remember that the velosity with which the Fed will raise rates will likely be very tepid for some time.  The Fed is very cautious right now and although they will surely get off the mark soon with small rate hikes, the pace will be very slow and MO will continue to be a fixed income alternative.
 
1 - See Chapter 4 - Stocks For The Long Run by Jeremy J. Siegel