Welcome to the last month of 2021. If you’re confused on how to read current market conditions, you are probably not alone. The past 3 sessions have been marked by volatility with wild swings from one extreme to the other. The market appears to be lacking direction in the face of the Omicron variant’s rise and the Fed’s admission elevated inflation levels might not be transitory after all.
It’s a moment made for defensive stocks, for the short-term hedges that protect an investment portfolio from market declines and high volatility. In short, it’s a moment that should have investors moving toward dividend stocks. These are the classic defensive play, with generally lower volatility than most other equities and a reliable income stream to balance out drops in the share price.
Bearing this in mind, we used the TipRanks’ database to zero-in on two stocks that are showing high dividend yields – at least 7%. Each stock also holds a Strong Buy consensus rating; let’s see what makes them so attractive to Wall Street’s analysts.
We’ll start with a classic ‘sin stock,’ Altria Group, the well-known maker of cigarettes, including the iconic Marlboro brand. A series of headwinds have buffeted the tobacco company in the past year, ranging from the trade disruptions secondary to the COVID pandemic to the underperformance of the company’s large investment in the brewing company AB-Inbev to lawsuits and losses resulting from its purchase of the JUUL smokeless electronic cigarettes and a patent dispute with British American Tobacco.
We all know complications that COVID has wrought, but Altria’s other issues may require some explanation. Altria has for years held a 10% stake in AB-Inbev, and until 2018 profited handsomely from the brewer’s high dividend. Inbev has since then cut back the dividend, and now pays out ~20% of its 2018 levels; the cuts came secondary to the company’s deeply leveraged purchase of SABMiller in 2016.
After the SABMiller acquisition, Altria’s stake in BUD was subject to lock-up restrictions which expired in October of this year. There was speculation that the tobacco company would divest itself of the underperforming brewer – but at the end of October, Altria announced that it would keep the BUD stake. The company reiterated its confidence in AB-Inbev’s ability to meet its challenges based on a sound long-term strategy and premium global brands.
The e-cig issue may be more important for Altria at the moment, and may explain the company’s keeping the beer investment. Altria was long considered poised to dominate e-cigs, having the smokeless heated tobacco IQOS system and a 35% stake in JUUL. But over the course of this year, JUUL is getting hit with anti-trust lawsuits, putting Altria in the way of a potential $13 billion hit – and worse, the US International Trade Commission ruled that IQOS violated British American Tobacco’s patents, and must be removed from the shelves. While these developments could shut Altria out of the e-cig market, for
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