While the Altria Group has remained silent on plans for the much-anticipated Kraft spin-off following the company’s board meeting held yesterday (30 August), the board boosted its quarterly dividend by 7.5% to US$0.86 per common share.
Altria’s silence following its first board meeting after the partial victory in what is widely viewed as the last major legal threat to the tobacco industry has dashed speculation that a timetable for the planned Kraft spin-off could be made public as early as this week. In a lawsuit brought against the tobacco industry by the US Department of Justice, a federal court ruled that while the industry was guilty of misleading advertising it did not have to pay substantial damages.
Merrill Lynch’s Christine Farkas said in an investor note that the increased dividend was below the 8.7% boost she had predicted.
“We believe that the slightly lower-than-expected dividend increase was in part due to the current mid-single digit EPS growth rate along with a relatively stable payout ratio,” Farkas wrote. “Further, the board may have considered the likelihood of a downward adjustment to its [payout] once Kraft is spun,” she continued.
Farkas told investors that although she expects Altria’s board to make conservative judgements regarding the litigation environment and other factors impacting the planned restructure, she will “continue to look for news in the upcoming weeks regarding the spin-off of Kraft.”
If and when the spin-off goes ahead, it is believed that in the short term Kraft shares will decline in value as Altria shareholders dispose of the food company’s stock. In the longer term it is widely felt that, free from the taint of tobacco, Kraft will be a stronger standalone company.
All eyes now turn towards the next scheduled meeting of the Altria board, which is scheduled for 25 October.