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When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Furthermore, you'd generally like to see the share price rise faster than the market. Unfortunately for shareholders, while the Altria Group, Inc. (NYSE:MO) share price is up 54% in the last five years, that's less than the market return. But if you include dividends then the return is market-beating. On a brighter note, more newer shareholders are probably rather content with the 34% share price gain over twelve months.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During the last half decade, Altria Group became profitable. That would generally be considered a positive, so we'd hope to see the share price to rise. Since the company was unprofitable five years ago, but not three years ago, it's worth taking a look at the returns in the last three years, too. Indeed, the Altria Group share price has gained 4.8% in three years. During the same period, EPS grew by 71% each year. This EPS growth is higher than the 1.6% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. This unenthusiastic sentiment is reflected in the stock's reasonably modest P/E ratio of 8.74.
The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image).
We know that Altria Group has improved its bottom line over the last three years, but what does the future have in store? Take a more thorough look at Altria Group's financial health with this free report on its balance sheet.
What About Dividends?
It is important to consider the total shareholder return, as well as the share price return, for any given stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for Altria Group the TSR over the last 5 years was 129%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!