Altria’s strategy shows potential for growth

In the new world of big tobacco, Altria (NYSE: MO) seems to march to its own beat.

Reynolds American and Lorillard have joined forces to fight the government over increased tobacco regulation, questioning the free speech (i.e., advertising) ramifications of FDA control over the tobacco industry.

Meanwhile, Altria announced plans to expand its product portfolio with Copenhagen- brand wintergreen smokeless tobacco (it bought snuff-and-wine connoisseur UST last year). That could drive Copenhagen’s share of the segment from 23 percent to 32 percent, according to a company spokesperson. Also, Altria is introducing a value-priced L&M menthol cigarette and continues to look for growth with its Marlboro Snus.

As Reynolds American and Lorillard battle for advertising supremacy, the lawsuits can hurt their bottom lines. The leading cigarette producers spent more than an estimated $13 billion on promotion in 2005, but new advertising constraints could have costly effects.

Yet Altria comes out smelling more like a rose than a cigarette butt. It gets to support the new FDA legislation and maintain a relatively decent public image. With a P/E ratio around 12 and a dividend yield above 7 percent, it may offer smoldering growth potential for investors in the short and long term.

Ask the Fool

Q: What’s the short-term tax hit for stocks? If I bought shares of stock at $10 and now they’re at $25, what’s the capital gains rate I would face when selling? – D.M., online

A: The short-term capital gains tax rate applies to stocks held for a year or less and is the same as your ordinary income tax rate, which can be as high as 35 percent. If you’re in the 25 percent bracket and your gain is $3,000, you’d face a $750 tax hit.

Note, though, that the long-term rate for stocks held at least a year and a day is just 15 percent right now for most investors.

My dumbest investment

In the early 1980s, an asbestos mining company (yes, asbestos) that my mother had shares in was bought by another mining company. My mother transferred the shares to me. Per the buyout terms, I received cumulative preferred stock in the new company. I just sat back and collected those dividend checks. Hey, this investing stuff is easy!

The price of the stock pretty much held steady, and at one point I consulted a broker about selling. I was told that I’d be crazy to, since with these shares, “even if the price tanks, you’ll still get your dividends!” Shortly after that, instead of my dividend check I received a notice that the company was exercising its option to convert the preferred shares to common stock. The stock price then tanked. I still have the shares, and the certificates will make some nice wallpaper. – D.R., Wisconsin

The Fool Responds: If a company implodes, most stakeholders suffer. Preferred shareholders are better positioned than common stockholders, but even they can end up with nothing. Stick with the strongest companies you can find.