Want $10,000 in Passive Income? Buy 2,360 Shares in This Dividend Stock

Dividend-paying companies provide a good way to earn regular income. This type of passive income can prove enticing since you receive it outside of your regular work.

Altria Group (NYSE: MO) has a long history of paying dividends. With a little basic math, you can calculate how many shares you'd need to receive $10,000 in annual dividends.

After that, you have to do some homework to make sure the company can continue paying dividends, and whether you should buy the stock.

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Share calculation

Altria's board of directors increased October's quarterly payout to $1.06 a share, up from the previous $1.02. At the new rate, that works out to $4.24.

Based on the higher quarterly dividends, you'd need about 2,360 shares to produce $10,000 in annual dividends. The calculation assumes dividends stay constant. Purchasing the shares will cost you nearly $157,000 based on the Oct. 1 closing price of $66.29.

That's a hefty investment. Of course, the exercise just illustrates what you need to invest to earn a targeted annual payout. You can adjust your investment accordingly.

History of increases

Altria has a history of raising dividends annually. Its recent increase ran its streak to 56 years.

That puts Altria in good, and rare, company. Companies that have raised dividends for at least 50 straight years belong to a select group called Dividend Kings.

Altria certainly has an impressive history of not just paying, but raising, dividends. But before pulling the trigger and making an investment, there's one more important step to take.

Does the stock merit buying?

That's looking into the fundamentals to better understand the business and determine whether Altria's dividends are sustainable over the long term.

The stock has a 6.4% dividend yield, much higher than the S&P 500 index's 1.2%. The index includes large-cap companies, making it an appropriate measuring stick given Altria's market capitalization.

Sometimes, a high yield can indicate an unsustainable dividend. With Altria's payout ratio of 79%, it appears that the company can afford the payouts in the short run.

However, over the long run, Altria will need to boost revenue to generate higher profits and continue raising dividends. The company sells tobacco products in the United States. While management hopes to produce more revenue from smoke-free products, that's not the case right now.

Altria's smokeable products division, accounting for most of the company's revenue, experienced a 0.4% year-over-year drop in the second-quarter top line, excluding excise taxes, to $4.6 billion. The division accounted for 86% of the period's top line.

However, volumes continued dropping, and the company's products persisted in losing market share. Certainly, that's not a recipe for long-term success.

Altria's oral tobacco products division, which includes certain leading smokeless tobacco products, experienced a 6% revenue increase to $728 million (excluding excise taxes). While this sounds promising, the higher top line also resulted from management enacting price increases. Volume dropped 1% and the products lost market share.

Altria's total second-quarter revenue was essentially flat, increasing a tepid 0.2%. That was due to higher prices, however. Given the company's volume decreases and market share losses, that's not sustainable. After all, it's basic economic theory that higher prices lead to lower demand.

With the business' fundamentals, I'd pass on the stock right now. While the shares have a juicy dividend yield, and the company's current financials don't suggest the payout is in imminent danger, the business needs to revive revenue growth. Clearly, raising prices and losing volume isn't going to lead to long-term success.

You can find better businesses with better-than-market dividend yields and a long history of raising payouts.

Lawrence Rothman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.