Monday, April 2, 2007

Altria (MO) : Spin Day and It's Effect

So the much awaited and talked about the spin became official Friday and this morning both Kraft (KFT) and Altria (MO) began trading on their own. Lets take a look at the immediate effect on our holdings today.

As I stated in a earlier post, I advised MO holders to dump Kraft shares and purchase additional Altria shares. Let's tale a look at the math to see how the spin has affect us. I will use the ValuePlays Portfolio to illustrate the effect. In the portfolio we have a purchase price of $88.06 per share. Now, as I have said before I have owned Altria shares for years but since I only started the blog in January and have no way of proving to you my true purchase price, my first post on the subject will have to be our purchase price. Based on the advice in my earlier post I immediately sold the Kraft and bough more Altria

This morning we got .69 shares of Kraft for each share of Altria we own. For simplicity sake, I am going to assume we only own 1 share. For this example in order to keep it as simple as possible and not get into partial shares and weighted average purchase price, I am going to assume we just sold our Kraft shares and are keeping the money in our account for now. Here is how it worked out.

Original Purchase Price of Altria: $88.06
Fridays Altria Closing Price: $87.81
Pre-spin Results: -.25 or .2%

Money received from sale of Kraft shares: $21.79 ($31.58 price X .69 shares)
New Adjusted Purchase Price of Altria: $66.27 ($88.06 - $21.79)

Current Altria Price: $67.80 (12 pm)
Post Spin Results: + $1.53 or +2.3%

Essentially, by dumping the Kraft shares that are down over 3% today at the open (which was also their high for the day) we have turned our investment in Altria from being just under water to up over 2%. Also, in 11 days we also get a dividend from Altria of 86 cents that at current prices adds another 1.3% to our gains. See Altria dividend information here.

Please do not get greedy and take these quick gains and run with the money. Hold your Altria shares because there is much more to come that will make you much more money in the end.

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