The Double-Edged Sword of Altria’s High-Yield Dividend
Investors are often drawn to Altria (NYSE: MO) like moths to a flame, enticed by its impressive 7.3% dividend yield. But beneath the surface, there lies a complex web of risks and rewards that warrant careful consideration.
A Yield That Stands Out
Compared to the average consumer staples company, which yields around 2.6%, Altria’s dividend payout is significantly higher. Moreover, the company has consistently increased its dividend over the years, making it an attractive option for income-seeking investors. However, this high yield comes with a warning label: Altria’s core business, cigarette sales, has been declining steadily.
The Decline of Cigarette Sales
The downward trend in cigarette volume is alarming, with declines of 9.7% in 2022, 9.9% in 2023, and 10.6% in the first three quarters of 2024. This raises concerns about the sustainability of Altria’s dividend payments. While the company has managed to offset some of these losses through price increases, the writing is on the wall: the cigarette business is in a state of permanent decline.
Market Leader in North America
On the other hand, Altria’s dominant position in the North American cigarette market, with a 41.7% market share, is a significant advantage. The company’s ability to dictate prices and maintain its market share is a valuable asset. However, this concentration of risk in a single market and brand (Marlboro) makes Altria vulnerable to disruptions.
The NJOY Factor
Altria’s acquisition of vape maker NJOY has been a bright spot, with shipment volumes increasing 15.6% in the third quarter of 2024. While this growth is promising, it’s essential to consider the bigger picture. NJOY is a small business, accounting for only $19 million of Altria’s revenue in the third quarter of 2024. Moreover, Altria’s history of strategic decisions is checkered, with previous investments in Juul and a marijuana company ending in billions of dollars worth of write-offs.
A Dividend Stock with Caveats
In conclusion, Altria is not a set-it-and-forget-it dividend stock. While the yield is enticing, investors must be aware of the underlying risks. Conservative income investors may want to exercise caution, but for those willing to take on the risks, Altria could be a valuable addition to their portfolio.
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