Altria Group, the company behind the Marlboro brand in the U.S., is facing challenges as cigarette usage continues to decline. In the past decade, Altria’s total returns have lagged behind the S&P 500, and its earnings and dividends have been growing. However, the company’s core issue lies in the accelerating decline of cigarette volume, which has more than doubled in recent years due to the rise of tobacco-free nicotine pouches and vaping products.
To address this problem, Altria has invested in new products like nicotine pouches and vaping devices. While these products have shown some growth, they are still small compared to market leaders like Phillip Morris International. Altria’s revenue still heavily relies on smokeable products, making it vulnerable to the shifting market trends.
Despite these challenges, Altria’s high dividend yield of 8.7% appears safe for now, as the company’s free cash flow can cover the dividend payouts. With a focus on reducing share count and growing per-share payouts, Altria can continue its streak of annual dividend raises. However, investors should closely monitor the company’s volume declines, as continued acceleration could pose a threat to its financial stability in the future.