Time for a look at a new newsletter on the block — this one comes from Andrew Zatlin, who has been selling economic research to institutions for a while but seems to be new to the world of retail newsletters that are aimed at individual investors. Here’s how he describes himself on his website:

“Moneyball Economics’ founder, Andrew Zatlin, created a system that leverages ‘oddball’ economic data for real-world investing and trading.

“From ‘hidden’ data in the labor markets, to using Andrew’s proprietary ‘Vice Index’ — where he tracks drug sales, prostitution and gambling — once you see how ‘Moneyball’ trading works, you’ll never look at the stock market the same again.”

And he has turned this perspective into an investing newsletter that focuses on sector rotation and stock picks… which he’s now selling to investors by promising that he has an “almost perfect inflation beater.”

Which sounds pretty appealing, right? We’re all feeling a little bruised and beaten by inflation at the moment, and there’s certainly plenty of fear out there among investors, even though the sentiment has arguably improved a little in recent weeks.

So what’s this secret stock? Let’s gather up our clues, feed them to the Thinkolator, and get you some answers… the ad is for what they’re calling Moneyball’s Sector Alpha Report ($149/yr), and this is how it gets going:

“The Secret to Beating ‘Bidenflation’

“Hated by Wall Street, this investment has been quietly returning 17% a year for 97 years… all while increasing its payouts nearly every year for 53 years in a row…”

The lead-in is all about President Biden, which is fairly typical — ad copywriters know that getting people ginned up and angry about a political figure is a quick way to establish a connection, which makes it easier to make a sale. And the investment newsletter market is very much “overweight” in affluent men who are in their 50s-70s, who also tend to identify as conservative or republican, so that’s part of the reason why so many newsletters hone in on that “connection” with their marketing targets.

More from the pitch:

“I’ve discovered the way to beating Bidenflation, and even coming out of this crisis with MORE wealth in your pocket…

“After 97 years, the secret is finally out…

“I finally caught them red-handed…

“I chased down all the breadcrumbs, and discovered an ‘almost perfect’ inflation-beating investment.

“An investment which has been CRUSHING inflation for decades, and putting up a 2,590% return the past two decades…

“The thing is, the company which now controls this investment is despised by Wall Street and scorned by the mainstream press…”

Ah, so it’s also somehow “contrarian” — people love to feel like they’re the only ones getting rich from some “hated” investment, so that’s another temptation.

What else do we learn about this “almost perfect” investment?

“This ‘hated” company has been quietly paying some investors 25% a year….”

And it must be a dividend growth company…

“Meanwhile an investment with this “hated” company has been consistently increasing its payouts almost every single year, for 53 years in a row…

“It doesn’t matter what you throw at it: Inflation, recessions, wars, pandemics, bad elections, stock market crashes…

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“The payouts keep going up… and up…

“And total returns kept going up… and up…”

Why is it that we don’t know about this “hated” company already? In Zatlin’s words:

“For one, the company behind this investment gets so much hate, and is considered so ‘politically incorrect’ by the mainstream, that it was forced to change its name.

“And not only that, Congress has banned much of the advertising from this company, most recently with the U.S. Public Law 111-31 passed in 2010.”

And…

“… this company operates in a highly regulated industry.

“Wall Street doesn’t like that. In fact, they hate it…

“The second reason why it’s hated is because there’s a trend pushing some fund managers and investment to adopt ‘socially responsible investing.’

“That’s a problem, because the way this company is setup is not considered ‘politically correct.'”

What else does he say about this inflation-beater?

“… this investment has a track record now going back 97 years of both beating inflation, and beating the market…

“In fact, I fully expect this investment to continue to rack up the consistently high returns we’ve seen in the past — even if we see 1970s-style inflation in the near future.

“And if the Fed somehow tames inflation… then this ‘hated’ investment should continue to do very well, as it has for almost a century now.”

Enough? More than enough, I’d say, the Thinkolator is standing by with our answer already… this is the tobacco giant Altria (MO), which did indeed change its name about 20 years ago, partially hoping to emphasize its other assets outside of Philip Morris. Back then, they also owned Kraft and were really a global consumer packaged goods conglomerate… but they spun out Kraft (as well as Philip Morris International (PM), which sells Marlboros outside of the US) back in 2007, and so they’re really back to essentially selling Marlboro cigarettes in the United States.

That’s probably not quite fair — they also dominate smokeless tobacco with their Copenhagen brand, own several other cigarette brands (Chesterfield, Parliament, Virginia Slims, etc.), and continue to have a number of other “side” investments (they own 10% of Anheuser Busch parent ABInbev (BUD), along with strategic investments that they hoped would lead to new markets and growth, including stakes in marijuana company Cronos Group (CRON) and the embattled vaping company Juul). But yes, by far their most valuable asset is Marlboro, the biggest and most profitable cigarette brand in the world.

And Altria has been a popular investment, at least among folks who don’t mind owning tobacco stocks, for a very long time… and for very good reason. Owning the most powerful brand in an industry with high barriers to entry and an addicted and brand-loyal customer base has been extraordinarily profitable, even after the many legal barriers the government has thrown in their path, and the massive payouts they’ve had to make to states in recent decades to help cover the healthcare costs of their products. Their product dominance in US cigarette sales is roughly the same as Coca Cola’s in soft drinks, Marlboro has more than 40% of the US market. I’ve covered them a few times that I can recall, back when Dan Ferris was pitching them in the years after the 2008 financial crisis and, more recently, when Cabot Dividend Investor was pitching them for their 6% yield a few years ago.

Cigarette smoking has fallen dramatically in the US over the past 20 years, especially in the key teen/young adult market, and Altria’s investment in Juul has backfired to some degree as that vaping company has been targeted for marketing to children, so the “capture the next generation” effort might be failing… but still, they have a captive audience and they can keep raising prices, and the company has done fairly well even in the past decade or so.

Before that, they weren’t just doing “fairly well” — they were essentially unmatched. One reason that most investors know Altria (or Philip Morris before them) is that they were singled out by Jeremy Siegel in his bestselling Stocks for the Long Run (first published in 1994, updated many times since) as being the best long-term performer in US stock market history… as of the 2006 update to the book, Altria had been the single best-performing stock in the US markets over the previous 50 years.

It’s probably worth noting that of the top 20 performing stocks from the original S&P 500 for that period from 1957-2006, at least half of them are companies that are either also cigarette makers (Lorillard, British American), or got wrapped into Altria at one point (like Kraft). Altria’s annualized return for those 50 years was truly stupendous, very nearly 20%. And we might as easily say that Philip Morris International could be the best performer, since PM, MO and Kraft were all part of the same company for much of that time… though Altria has done better than Philip Morris International over the past decade, which is a little bit of a surprise to me (since the population of smokers has not been shrinking nearly as fast in most other key markets in Europe and Asia as it has in the US).

The main argument from Siegel’s book was that dividends create winners — the big winners for that long time period were the steady dividend payers. Firms like Altria that have always generated prodigious free cash, and usually distributed a lot of that cash to shareholders, were the ones that could dramatically outperform for investors, largely because of the compounding power of those dividends even during (sometimes extended) down times for the stock market. And on that front, Altria still looks awfully appealing at first glance — their current dividend provides an astonishingly high yield of 8%, and if they can continue to grow that dividend over time that combination of a high current yield and inflation-beating dividend growth can compound into something truly fantastic.

Will they keep raising the dividend, though? Can they keep growing the business? For this to work fantastically you need both dividend growth and compounding — the dividend yield was dramatically higher 15 years ago, when pessimism was much higher for Altria, then drifted lower when people were more excited about Juul and Cronos six or seven years ago… but over the past few years, the dividend yield has generally been in the 6-9% range. For most of the past decade, their annual dividend growth has been in the 8-9% range, though it spiked higher in 2018-2019 and has recently come back down to about 4% growth in the past couple years. The “some investors are getting 25% yields” bit of the tease would come from the fact that some investors bought many years ago, or from the power of compounding as they reinvested their high dividends for several years.

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 before the big Master Tobacco Settlement tobacco settlements 24 years ago — and though smoking has dropped pretty precipitously, enough people keep smoking to keep the cash register ringing quite nicely for them, so I don’t really know where or when the seesaw really begins to pivot, and the shrinking of their market finally eats into their profitability. I would have thought they’d run into trouble before now, but they’ve been holding up pretty well.

Which isn’t to say that they’re still beating the market — they aren’t. At least over the past 5+ years. And that’s mostly because their revenue is pretty flat — you don’t have to be a high-growth company to be successful and beat the market over long periods of time, but you do have to have some growth, and so far their non-cigarette investments have failed to really fill the gap as the cigarette user base shrinks.

Here’s the performance of both Philip Morris International (PM) and Altria (MO) over the past decade — that’s their revenue at the bottom, PM in orange has barely kept its sales flat, partly because of the strength of the dollar, and MO in pink has seen its revenue grow only 18% in 10 years (just keeping up with inflation would have led to 30% growth, so in “real” terms they’ve been shrinking). The stock performance has still been pretty solid, mostly because those high dividends continue to attract investors, but both MO (green) and PM (purple) have returned far less, including dividends, than the S&P 500 (blue) over the past decade.

PM Total Return Level data by YCharts

It hasn’t been all bad, of course — Altria has improved its gross margins over the past decade as they’ve raised prices, and generally kept a lid on costs. Their operating margins have improved even more, as they’ve gotten more efficient and as the restrictions on cigarette advertising have helped with their costs (that’s a mixed bag — no ads means depressed growth, but it also means nobody is taking market share or launching hot new products, which is good for the dominant market leader). And their per-share dividend has more than doubled over the past decade… though we should also note that their total long-term debt has grown at about the same pace as the dividend.

I don’t know what the future holds, but I don’t think Altria has any real chance of being the best-performing stock in the market for 50 years again. They may be able to create new avenues of growth in smokeless tobacco or other products, and they probably won’t fail dramatically, but it’s hard to see them being able to grow meaningfully in the future. The dividend is the primary attraction for investors, and it is nice and high, so that may well provide some foundation for the shares — but their dividend growth has also slowed down dramatically, in the 3-5% range in recent years (after averaging better than 10% for many years), so that, too, is currently failing to keep up with inflation.

Though yes, I am biased agains the cigarette industry, and do personally avoid making investments in this space… so you might have a somewhat rosier outlook.

Interestingly, if you do want to get involved with Altria, Zatlin has a more specific recommendation… here’s how he teases it:

“Do NOT Buy This Investment on the Stock Market

“There’s something else very quirky about this particular investment…

“It’s true this “hated” investment is publicly traded. So it is possible to get into this using the stock market.

“But this other way to get in… the way I want to show how to use… is way better…

“This way uses something I call the ‘Inflation Boost.’

“This ‘inflation boost’ is a special program offered by a handful of companies in the public markets.

“This program allows you to invest directly in this company.”

How is that better? More from the ad:

“This program is 100% legal to use. And it lets you completely avoid any fees or expenses you might have to pay with a regular stock brokerage account.

“But even more than that, this “inflation boost” can set you up to automatically start building your wealth like I’ve been showing you today…

“For example, using your normal brokerage house, you might only get 288% returns over 20 years.

“That’s pretty good…

“But if you took advantage of this ‘Inflation Boost’ then your returns over the next 20 years could be more like 2,590%…”

What Zatlin is talking about here is just using the company’s Direct Share Purchase Program (DSPP), which is run through Computershare… and doing dividend reinvestment with those shares, often called a Dividend ReInvestment Plan (DRIP). The advantage of a DSPP is that it allows you to invest a regular amount in the specific stock, with pretty low fees, though the fees are not zero (so many discount brokerages can actually do the same thing, at lower cost)… and that you reinvest your dividends (again, most discount brokers will do this for free, too), so your holdings can compound without you doing anything.

Steady investing and compounding dividends are indeed one proven way to steadily build a portfolio over time, particularly if you have the discipline to let it work when the market is otherwise freaking you out, but there’s no magic in the buy-direct model. You could do the same thing with Fidelity or TD Ameritrade or Schwab and, depending on your specific account terms, it might even be cheaper — you don’t get a special discount or anything for buying direct from Altria through Computershare, they charge a few dollars to buy and they even charge a small fee for dividend reinvestment, and they charge you a heftier commission to sell ($25 plus 12 cents per share). Sometimes the discipline of a direct buy is good for people, since it makes it easier to ignore the position if you’re not watching it every day in your brokerage account… but other than the psychology of it, I can’t give you a good reason to use a DSPP or DRIP over just opting for those usually free and convenient services in your regular discount brokerage account.

So there you have it… Altria (MO) pays a high dividend right now, and Andrew Zatlin is pitching it as his favorite inflation-beating “Moneyball” investment. Not my cup of tea… but, well, you’re investing your own money, so you get to make the call. Interested in the longstanding power of this cigarette maker? Have other guesses at who the best inflation-beater will be over the next few decades? Let us know with a comment below.