Saturday, February 27, 2016

Historical Total Returns of Altria (MO) from March 1970 - February 2016

Altria Group, Inc. (symbol: MO) is well-known among stock market investors for being one of the greatest long-term wealth-creation vehicles available.  It has provided annualized returns in excess of 20% per year since at least the 1960s.  Historical closing prices and dividend payments for Altria dating back to the early 1970s are available for inspection from Yahoo Finance.

Altria is one of the world's largest tobacco and cigarette corporations and is the parent company of Philip Morris USA, John Middleton, Inc., U.S. Smokeless Tobacco Company, Inc., Philip Morris Capital Corporation, and Chateau Ste. Michelle Wine Estates. Kraft Foods Inc. was spun off to shareholders in 2007 and Philip Morris International was spun off to shareholders in 2008. 

Altria was known as "Philip Morris Companies Inc." prior to 2003.  The company name was changed in an apparent effort to distance the company from the negative perception of tobacco companies at the time. 

Altria is a popular holding among dividend growth investors and, accounting for spin-offs, has raised dividend payments for an impressive 46 consecutive years.  I have previously discussed Altria's historical dividends in a prior post.

The total returns for calendar years 1971-2015 and for partial years (3/31/1970 - 12/31/1970) and for 2016 up through market close on 2/26/2016 are shown in the charts below (click on an image for an enlarged view).  The total returns shown below have been calculated based on an assumption that all dividend payments are automatically reinvested back into additional shares on the date on which each dividend was effectively removed from the stock price (e.g., on the ex-dividend date).

As shown below, the total returns for Altria have been absolutely phenomenal.  The total return between market closes on March 31, 1970 and on February 26, 2016 was about 505,704%!  Assuming no transaction costs, a $1000 investment into MO at the market closing price on March 31, 1970 would now be worth about $5,075,045.  That is an annualized return of approximately 20.4% over a nearly 46-year period of time. 

As shown in the charts above, Altria has increased in value for almost every year tracked.  Notable down years included those during the steep 1973-74 bear market, the 2008 financial crisis, as well as several years during the 1990s when there were fears that the U.S. government would completely ban the sale of tobacco products. 1999 was a particularly bad year as investor sentiment sourced in the wake of the Tobacco Master Settlement Agreement, pursuant to which Altria and other major tobacco companies agreed to pay $206 billion to 46 U.S. states to settle Medicaid lawsuits.  The Agreement also required the tobacco companies to end certain marketing practices.

The Tobacco Master Settlement Agreement did not put Altria out of business.  Instead, Altria emerged even stronger than ever and now controls over 50% of the U.S. market for cigarettes and smokeless tobacco.   Altria's total return between the market closes on December 31, 1999 and on February 26, 2016 has been approximately 2,668%, or an annualized return of about 22.8%.

Altria has been a fantastic performer in the stock market since at least the early 1970s and should continue to be so well into the future.  There have been government bans on tobacco television and radio advertising since 1971 and on billboard and via certain other marketing practices since the Tobacco Master Settlement Agreement.  The advertising bans have results in decreased public consumption of tobacco products.  However, the bans have also effectively created enormous barriers to entry in the U.S. tobacco market, giving Altria huge pricing power which should help the company continue to record consistent earnings growth long into the foreseeable future. 

Friday, January 08, 2016

Historical Annual Returns for the S&P 500 Index - Updated Through 2015

2015 was a mediocre year for the U.S. stock market indexes as a strong U.S. Dollar hurt earnings of multi-nationals.  The entire market also wavered under the prospects of a Federal Reserve interest rate hike and China's devaluation of its currency in August.   The total return of the S&P 500 Index was just 1.38%. 

As I have previously mentioned, Standard & Poor's introduced its first stock market index in 1923 and created the S&P 500 Index in 1957.  The charts below (click on individual charts for a larger view) show annual total returns for the S&P 500 Index (and its predecessor S&P 90 Index) between 1926 and 2015.  The annualized return for the S&P 500 Index (and its predecessor S&P 90 Index) between 1926 and 2015 was about 10.02%.  The 5-year annualized return through the end of 2015 was about 12.57%.  The 10-year annualized return through 2015 was about 7.30%.

According to the Wall Street Journal, as of January 8, 2015, the P/E ratio of the S&P 500 Index based on estimated earnings over the next 12 months is approximately 15.75. As I have previously discussed, the average P/E ratio of the S&P 500 Index and other large caps stocks has been around 16 based on data dating back to the 1800s, so the S&P 500 Index appears to be slightly undervalued relative to its historical average P/E ratio.