Altria goes after vapers and stoners

USA | Mad Money rules again. In December 2018, AB-InBev’s shareholder, the cigarette company Altria, paid USD 12.8 billion for a 35 percent stake in e-cig maker JUUL. This makes the San Francisco-based start-up worth USD 38 billion, more than other Silicon Valley start-ups, such as Airbnb, Pinterest, and Lyft. Many analysts thought the deal pricey, as JUUL’s turnover is estimated at only USD 2 billion.

Also, in December 2018, Altria bought a 45 percent stake in the Canadian cannabis producer Cronos for USD 1.8 billion. Though smaller in terms of cultivation capacity than most of the other major Canadian cannabis producers, Cronos is more efficient than its rivals. In terms of turnover – estimated at USD 12 million in 2018 – Cronos ranked only sixth among major Canadian marijuana producers. In terms of profit margins it ranked second.

Given that Altria, a USD 25 billion turnover firm, is spending big money to diversify its portfolio, it cannot be too pleased that AB-InBev decided to half its dividend payout in 2018.

Altria controls a 10 percent stake in the world’s number one brewer. As part of AB-InBev’s takeover of SABMiller in 2016, SABMiller’s two biggest shareholders – Altria and Colombia’s Santo Domingo family – came to AB-InBev’s table. But at a price: they cannot reduce their holdings until October 2021. Therefore, AB-InBev’s dividend is an important source of cash for them.

In the past, investors liked Altria’s “sin stock” for its hefty dividend payments – so much so that they chose to ignore Altria’s declining ciggie sales, its lack of diversification, its over-dependency on the US market, the threats from liability suits and regulatory interferences, as well as competition from cheaper cigarette brands.

But now there is a question mark hanging over those dividends too. As AB-InBev declares its dividend in euros, which Altria needs to convert into US dollars … and with the dollar appreciating over the euro, the unfavourable conversion rate alone can put a dent into Altria’s earnings from its stake.

From 2002 through 2015, Altria received nearly USD 9 billion in equity earnings and nearly USD 4 billion in dividends from its interest in SABMiller.

In 2016, Altria reportedly made USD 795 million from its stake in AB-InBev; in 2017 only USD 532 million. Let’s wait and see how much Altria will earn in dividends in 2018 after the cut.

Its share price, which lost over 30 percent in 2018, points to dark clouds hanging over Altria.