Investors often flock to Altria, drawn in by its impressive 8% dividend yield and long history of dividend increases. However, beneath the surface lies a significant risk: the company’s core business is in a state of long-term decline. While it’s no secret that Altria’s primary business is cigarette manufacturing, the real concern lies in the steady drop in cigarette sales. In the first half of 2024, cigarette volumes plummeted 11.5%, a trend that’s been ongoing for years.
To compensate for this decline, Altria has relied on price hikes, leveraging the loyalty of its customer base. However, this strategy has its limits, and the company’s reliance on premium cigarettes, particularly its flagship Marlboro brand, poses a significant risk. With 91% of its cigarette volume attributed to Marlboro, Altria is heavily dependent on a single brand in a declining market.
The rise of affordable alternatives, such as e-vapor products, poses a significant threat to Altria’s business model. While the company is attempting to diversify through acquisitions, including its recent purchase of NJOY vape, these efforts are still in their infancy. NJOY’s rapid growth is promising, but it remains a tiny fraction of Altria’s overall revenue.
As the company’s cigarette business continues to decline, its ability to maintain its dividend yield will be severely tested. Investors would do well to consider the concentration risk associated with Altria’s reliance on Marlboro and the potential backlash from consumers as prices continue to rise. Before investing in Altria, it’s essential to carefully weigh these risks against the allure of its dividend yield.
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