Today we have the uncertain pleasure of checking out a teaser pitch from James Altucher, who one of our readers referred to as the “white Don King of the stock gurus” — he’s peddling subscriptions to Altucher’s Investment Network (that’s his “entry level” letter, $79/year), and the bait he dangles out is his “special report” entitled “Weed-tirement: The Key to a Seven-Figure Pot Pension in the 21st Century.”
Altucher gives me more of a headache than most of the promo-kings, but several readers have asked about this one, and the furor over anything marijuana-related seems to be unquenchable (which is why, of course, the newsletters keep coming out with new weed-related stock picks), so we’ll have a quick look for you today and see what this “Weed-tirement” idea is…
Here’s the lead-in to the pitch:
“Urgent: June 13th Deadline Approaching!
“Learn how this massive payout plan…
“Offered by the most profitable company in marijuana…
“Could double your retirement savings starting with as little as… $50
“Wall Street will not advertise it.
“Your 401(k) can’t compete with it.”
So what is it? More from the ad…
“Did you know that ordinary Americans can legally access an almost unheard of “secret” plan that could allow anyone to retire rich from marijuana?
“And even though it’s got nothing at all to do with the government…
“This plan is much safer compared to other investment strategies.
“This 100% fully legal plan could be your ticket to financial independence, once and for all, using a strategy that goes back over 40 years…”
Huh? We know there was no legal “weed” investing back in the 1960s and 1970s… we weren’t far removed from “reefer madness” back then. So what is he talking about when he says that “just a single dollar in what I now call ‘Weed-tirement’ could have grown into $6,638 by 2015?”
Must be something that was not weed-related before, but somehow is now… right? Let’s get into the clues:
“With a tiny initial commitment of less than $100…
“You could be on your way to receiving regular payments that start adding up to $10,000, $20,000 or more every year.
“And over the long run, simply by participating, you could even be seeing payments adding up to six figures each and every year!
“The best part about this alternative investment program is it works the same way a 401(k) fund does.
“But you don’t have to wait 20 years or more to start seeing the results.”
OK, fine, so what is it?
“It all works by tapping into the revenue of one of the most profitable companies ever to enter the marijuana trade.”
Ah, OK. So that almost certainly means we’re talking about one of the large companies that has begun to invest in marijuana… but that also has been around for a long time and, I’m guessing from the “payout” talk, pays a solid dividend. That narrows it down quite a bit.
What else? We get some hints about folks who are already collecting payments…
“It took a little digging around, but I found some people who are already benefitting from it.
“They’re picking up payments that arrive like clockwork.
“People like 58-year-old Jenny Skeine, from Nevada. She collected an extraordinary payment of $4,587.20 in early January.
“And another for the same amount in April.
“55-year-old Norman Markum, from Delaware, got his scheduled payments for $7,380 in January and April too.”
And the near-term urgency:
“And with the next scheduled payment set to arrive on July 10…
“If you registered and contributed to this plan today, you’d be about to receive your first payment too.”
At least he talks about “contributing” to the plan, and about how your payouts will be determined by the amount you invest — so many of these kinds of ads imply that the dividends you receive are somehow a “payout” that you can just “enroll” to receive, and gloss over the fact that you have to put money at risk to make a share of corporate profits.
So what is the investment in “Weed-tirement” all about? More from Altucher:
“The contributors to ‘Weed-tirement’ just committed almost $2 billion to marijuana growing operations.
“And they’re about to throw another $1.05 billion in to boot.
“This is why this plan is available to anyone looking to make real money off of the explosive growth in the demand for marijuana.”
And we’re told that this company has been “constantly expanding and diversifying” for years, but that they raise money for it with an “alternative investment plan” that pays out such extremely high returns that it “seems ‘too good to be true.'”
This clearly has something to do with compounding, here’s more of the tease:
“Payments this size four times every year, year in and year out, can stack into seven figures much faster than any comparable retirement plan could deliver.
“And if you’re willing to stick with it over the long term…
“You’re looking at an investment vehicle delivering five times the return a standard 401(k) would as you’re nearing retirement.
“‘Think of [the plan] like a snowball,’ says Brannon Lambert, an independent financial advisor at Canvasback Wealth Management in Raleigh, North Carolina.
‘The larger it grows, the more it feeds itself. The more it feeds itself, the more it grows.'”
Sheesh, I’m not used to seeing Altucher wearing his “reasonable” hat, but he actually said “long term,” and described the process of compounding dividend returns pretty well.
And one last hint for you:
“In 2017 the ‘Weed-tirement Plan’ shared a total of $4,807,000,000 with people already enrolled in the strategy.
“No, I didn’t ‘add on extra zeroes.’
“This is the very real power this plan has.
“In fact, in 2018 the total payout to active plan members grew to almost $5.4 billion.”
OK… so what is “Weed-tirement?” Thinkolator says that Altucher is just teasing shares of Altria (MO), the maker of Marlboro cigarettes and, yes, a company that is investing in Canadian marijuana and otherwise gradually diversifying away from cigarettes (including into smokeless tobacco and nicotine delivery systems, like Juul vape equipment and On! nicotine pouches).
And the “special” aspect of the investment is likely just direct DRIP investing in Altria. Like many larger companies, Altria offers direct share purchase and direct dividend investment without using a broker — these are usually called Direct Share Purchase Plans (DSPP) and Dividend ReInvestment Plans (DRIP), and they can be a reasonable way for shareholders to gradually build positions in dividend-paying companies… mostly because they often have fees that are below typical brokerage commissions (though not always — sometimes they’re higher, and the value of direct DRIP plans is far less obvious now, in the era of low-cost brokers who offer free dividend reinvestment, than it was when most people were stuck with high-cost full-service brokers). Computershare’s website seems to be down for the moment for some reason, so I haven’t checked the details — but they often don’t charge fees if you commit to buying, say, $200 a month worth of shares and letting the dividends compound.
A DSPP can also make it a little easier to have some “buy and hold” discipline, mostly because it just adds some friction — it’s a little harder and slower to transfer money in and out and sell your shares than it is with a typical broker, who is incentivized to get you to make more transactions, so it might make you more patient and less likely to try to time the market.
But absent that discipline, the real benefit of a DSPP is the ability to build a position in a single stock with regular dollar amounts each month or quarter, including fractional shares, and to have it on “autopilot” (so your $200 might buy 4.06 shares this month since the price is $49.18 per share, then if the stock drops to $42 next month your $200 would buy 4.76 shares, you end up with 8.82 shares instead of the “8 shares plus cash” you would have if using Robinhood or another discount/free broker, which means compounding works slightly faster). I don’t know if Altria’s plan offers this, but it probably does.
And yes, June 13 is a real deadline — though it’s actually June 12. The stock will begin to trade ex-dividend on June 13… that means “without the dividend,” so those who own the stock on June 12 will receive the 80 cent dividend for this quarter, those who buy it on June 13 will not get the dividend. The stock always opens lower on ex-dividend day to reflect that 80 cents, but where it trades after that will depend, of course, on investor sentiment. Dividends are taxable so, all else being equal, you’re better off buying the day after a regular dividend than the day before, even with lower dividend tax rates, but for regular quarterly dividends the impact is very minor… the gains come from letting those dividends get reinvested into new shares, compounding returns for many years as the dividend and the share price rise over time, assuming that both do rise, not from catching a particular quarter’s payout.
As to the company itself, well, my opinion hasn’t changed in the last five months — Altria was teased as a dividend darling by Cabot back in January, and other than some news about the continuing decline in US cigarette sales and the talk about increasing the tobacco purchase age to 21, the story hasn’t really changed much and the price and valuation are almost identical… so I’ll just re-share what I wrote about them then:
Altria has been probably the single best investment for the market in the past 75 years… at least, the best “regular” stock that didn’t emerge from nowhere and go bonkers, like Netflix (NFLX) or Amazon (AMZN). That outperformance has continued even in the much-more-regulated modern era for cigarettes, here’s what the chart looks like for Altria’s total return compared to the market over the past 20 years (compared to the S&P 500 and a couple utility and consumer staples ETFs):
I’m not willing to own tobacco companies directly (I’m sure I have some in my mutual funds), and I can’t say that their recent decision to invest heavily in Juul Labs has me feeling any better about them, personally, but MO has certainly been a fantastic long-term investment.
Will that continue as smoking continues to fall? Well, that probably depends more on whether vaping becomes (even more) mainstream and keeps some of that nice fat profit margin for them, since nicotine addicts can be profitable customers whether they’re burning or vaporizing the stuff, or on whether they’re able to lever their way in to build or buy some big brands in marijuana, as I’d guess they would very much like to do (they’ve already agreed to buy 45% of the Canadian marijuana company Cronos (CRON) for $1.8 billion… with, somewhat like Constellation’s (STX) agreement with Canopy Group (CGC), the possibility of getting a controlling stake in the future with warrants).
They have been facing a long slow decline in smoking rates for decades, and massive taxation, but have also been able to raise prices to levels that we would have considered absurd 20 years ago — and enough people keep smoking to keep the cash register ringing quite nicely for them, so I don’t really know where the seesaw begins to pivot. Does the recent weak performance, and the regulatory backlash against Juul, mean that they’ve topped out and won’t be able to keep increasing cash flow? Or is this just another stumble for a dominant business that serves brand-loyal addicts? That’s the question I’d be asking about MO, but it’s also a question I would have been answering incorrectly over at least the past decade, to my financial detriment, so you might want to form your own opinion on this one.
Altria does have wine and beer investments — they own a wine business that’s essentially a rounding error on the income statement, and they still own about 10% of Anheuser Busch/Inbev (BUD) — but unless they decide to sell those BUD shares in a hurry the rise and fall of earnings will continue to be dominated by their dominant brands in cigarettes (Marlboro, with a 43% market share in the US, light years beyond everyone else) and in smokeless tobacco (Copenhagen and Skoal, which together have about 50% of the super-gross spitting market — yes, if you’re a chewer I still love you, and I’ll take that over your smoke going into my lungs, but that spitting in a cup thing is disgusting).
That dramatic outperformance over the past 20 years obscures the tough time Altria has had over the past year and a half, so here’s a shorter-term look, just for some perspective:
I would assume that the returns for Altria will be fueled largely by the dividend going forward, and it does yield about 6%, so that gives you a better entry point than you would have seen a year or two ago… and the trend is still improving in the major criteria that impact dividends. This chart shows the past nine years (including the first few months of 2009 obscured things a bit, so I cut them off), including the share price (blue), dividend per share (orange), operating income (green), and share count (red):
So as of the past few years, the dividend keeps rising, the operating income keeps rising, and the share count keeps falling… that helps the per-share dividend and earnings numbers to look better, and it begins to look as though the fall in sentiment about Altria is really just the share price coming back to earth and returning to the trend line established by their dividend growth. Long-term debt has risen a little, but is still only about $13 billion (versus a $90 billion market cap), and the debt service so far seems to be easily covered (they spent $5 billion a year just on their dividend, the debt costs them a lot less than that).
My best guess is that Altria’s share price will track its dividend growth over the next few years — and given their fairly aggressive dividend growth history, that probably means the stock has a decent chance of 10-15% annual returns… assuming that enough people keep smoking and vaping and chewing to keep their revenue flat or maybe even growing by a percent or two, and that they can keep raising prices to increase earnings. Even if Juul and Cronos do really well, they aren’t likely to massively change the income prospects anytime soon — their revenue is just so small in comparison to Altria’s core cigarette business, though Juul has certainly had some phenomenal growth to date.
What’s not to like, really, except for the fact that it’s largely a tobacco company and I won’t buy those, and except for the still-hefty regulatory risk as the vaping products, one of their major growth hopes, come under pressure from the FDA (which recently pushed to restrict the fun flavors of vape “juice” because kids, for some reason, were attracted to cotton candy and gummy bear flavors of nicotine)… though if there’s a company that has come through intense government regulatory pressure (and societal backlash) stronger than Altria has, at least in profit terms, I can’t think of it — Facebook (FB) might want to be taking notes here.
Not much of a “secret,” as you might note, since Altria and its tobacco peers have been among the best performing stocks, with Altria really leading the pack for most of modern history, and they do pay a very visible and high dividend and the headlines abound about Altria trying to get into the marijuana business to hopefully build that “Marlboro of Marijuana” brand in the future.
And yes, if Altria continues to grow at least a little bit — or even if stagnation settles in — then Altria shareholders who reinvest their dividends will continue to do very well as those large dividends compound and their money makes more money. It’s not magical, a 6% yield doesn’t mean you can save your retirement by investing $50 in a share of Altria today, but a high and growing dividend, combined with dividend reinvestment and a plan to invest more money on a regular basis for the long term, can indeed work wonders if you are lucky enough to choose a company that can thrive for 20 or 30 years… and patient enough to let that compounding work without getting in the way. There are good reasons why every broker tells you that “past performance does not guarantee future results,” but it is, at least, very true that Altria has just about the best “past performance” of any stock you could imagine over the long run.
And with that, dear friends, I’ll leave it to you — like Altria as a play on marijuana for your “Weed-tirement?” Prefer to avoid the sector, or like other stocks for DRIP investing? Are you more of a penny weed stock gambler, with favorites to share in that space? Let us know with a comment below.
Disclosure: I own shares of Facebook and Amazon, mentioned above. I do not own shares of any other stock covered, and will not trade in any stock covered for at least three days, per Stock Gumshoe’s rules.