3 Reasons to Buy Altria Stock Like There's No Tomorrow
Altria (NYSE: MO) is a stock that you are likely to either love or hate. There’s very little middle ground. And the reasons that people might find themselves on either side of the debate will likely center around some of the same core facts. Here’s a look at three key reasons that investors might like Altria… and why those same reasons might lead investors to avoid the stock.
Dividend investors are the most likely kind of investor to be attracted to Altria thanks to the stock’s huge 7.3% dividend yield. The average consumer staples company has a yield of just 2.6%, using the Consumer Staples Select Sector SPDR ETF (NYSEMKT: XLP) as a proxy, while the S&P 500 index (SNPINDEX: ^GSPC) is only offering 1.2%. And Altria has been increasing its dividend regularly for years as well. From this perspective, there’s a lot to like.
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However, stocks don’t generally find themselves with well above average dividend yields for no reason. In Altria’s case the problem is pretty simple. It has been selling less and less of its main product, cigarettes, every year. The downtrend has been going on for a while and there’s no sign of the trend shifting in a more positive direction. In fact, the declines look like they may be speeding up. Cigarette volume fell 9.7% in 2022, 9.9% in 2023, and 10.6% through the first three quarters of 2024.
Yes, Altria is offering a high yield, but dividend investors need to recognize that the yield comes with high risks, too. With Altria the risk is that its most important business could be in a permanent state of decline.
That said, Altria’s position within the cigarette business is interesting. For starters, it only operates in North America. And it happens to control the most important cigarette brand in that market, Marlboro. The brand’s market share of the North American cigarette industry is a massive 41.7%. Within the premium segment in which it more directly competes, Marlboro has a 59.3% share. There’s no question that Altria is the market leader in the markets it serves, and that has material value. That includes the ability to be more aggressive with price increases, which have been used to offset the volume declines noted above.
There’s a flip side, however. Altria is almost the definition of a one-trick pony. It was spun off from Philip Morris International, which basically operates all of the same brands as Altria, but outside of North America. With just a single market, Altria simply doesn’t have as much diversification as it once had. That’s compounded by the fact that its business is really centered around one core brand, Marlboro. If there’s a problem with Marlboro in North America, like ongoing volume declines, Altria’s options are pretty limited when it comes to finding a solution.
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