Altria (MO) is a major consumer staple company and one of the so-called Blue Chips. These are companies with a corporate history of at least 100 years that pay dividends yielding at least 3.0%.

For conservative income investors, these Blue Chips can be worthy of a closer look. These are companies that combine stable, relatively low-risk businesses with above-average income generation potential.

Company Overview          

Altria operates in the tobacco industry. It manufactures and sells cigarettes, smokeless tobacco products, and wine. Altria also holds a stake in Anheuser-Busch InBev, which is the world’s largest beer company. About 85% of Altria’s revenues are generated from smokeable product sales, which includes cigarettes and cigars. The company owns the world-famous cigarette brand Marlboro. Altria only sells its products in the US, international markets are serviced by Philip Morris.

Altria reported its second-quarter earnings results in July. The company earned $1.01 per share during Q2, which represents a compelling 19% increase over the prior year’s second quarter. Revenues were down by 3.7% year over year, mainly due to lower cigarette shipments.

Growth Prospects      

The tobacco industry is not a high-growth market, but Altria has nevertheless been able to generate compelling growth rates in the past. Cigarette sales volumes are declining, but since customers are not price-sensitive at all Altria can increase the price per cigarette regularly. This does not only allow for revenue increases in most years, it also leads to margin increases, which, in turn, leads to rising profits.

Altria’s Anheuser-Busch stake will generate rising dividend income for Altria, and Altria’s wine segment continues to grow as well. The most promising growth project is the roll-out of iQOS, though. iQOS, which is a heat-not-smoke product that allows for tobacco consumption with less risk to one’s health, was developed by Philip Morris. Altria plans to license the product from Philip Morris and awaits approval for the product in the US. Once the FDA has approved iQOS Altria will be able to generate revenues from the product which has been a huge success in markets such as Japan and Europe.