3 Reasons to Buy Altria Stock Like There's No Tomorrow

Tobacco giant Altria (NYSE: MO) has experienced impressive stock price growth over the past 12 months, up more than 30% and only a couple of dollars below its five-year high.

Altria has managed to put together an impressive portfolio, owning brands including Marlboro, Copenhagen, Skoal, Black & Mild, Parliament, and most recently, Njoy.

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Although some people have reservations about investing in Altria because of the nature of the tobacco business, it's still a great dividend stock. If it's a stock you're considering, here are three reasons to add it to your portfolio.

1. It's all about Altria's dividend

Regardless of recent stock price success, the appeal of Altria's stock is undoubtedly its dividend. It's the reason most people invest in the company.

With a dividend yield of around 7%, it's one of the highest-paying dividend stocks on the market and certainly in the S&P 500. And this is after a stock price run; its yield hit over 9.6% last year. That isn't necessarily a celebration because dividend yields move inversely with stock prices, but it's worth pointing out.

MO Dividend Yield data by YCharts

Altria's ultra-high dividend yield is more than 5 times the S&P 500 average, and it's likely to maintain a significant distance between the index.

Maybe the most important part of Altria's dividend, however, is how many consecutive years it has increased it. When Altria increased its annual dividend to $4.08 last year, it marked the 55th consecutive year of increases. That makes it a Dividend King, a title only around 60 companies have earned.

2. Altria is using pricing power to help with declining volume

The No. 1 factor weighing on Altria's long-term business is the falling smoking rates in the U.S. According to the American Lung Association, the percentage of U.S. adults who smoked cigarettes dropped 17% from 2017 to 2022 to 11.6%. Twenty years ago, around 1 in every 5 U.S. adults smoked cigarettes.

When the vast majority of a company's revenue comes from cigarettes, like Altria's does, you can see how this trend could be troubling. Of course, people quitting smoking is a plus health-wise and should be celebrated, but that doesn't make life any easier for Altria's business.

Luckily, Altria has been able to offset declining or stagnant volume in its smokeable products by flexing its pricing power. Smokers are some of the most price-insensitive customers because a relatively small increase in prices isn't generally enough to deter a smoker from buying their go-to products.

In 2024, Altria's smokeable products segment saw a 10% decrease in shipment volume, but it increased prices to keep its overall revenue decline to 0.8% (not accounting for excise taxes).

MO Revenue (Annual) data by YCharts

"Just raise prices" isn't a long-term solution to Altria's problem, but it is working to buy the company some time until it makes a legitimate transition to smoke-free products.

3. Njoy has been making positive progress in e-vapor

Njoy is a smoke-free e-vapor brand that Altria purchased in 2023 to help give it a stronger presence in the smoke-free tobacco industry.

Last year, Njoy showed some much-needed momentum. Its consumable shipment volume grew more than 15% year over year to 12.8 million units, and its device shipments increased more than 22% year over year to 1.1 million units.

This did well for the brand's market position, with its retail share of consumables jumping from 3.6% to 6.4% in convenience and multi-outlet channels (grocery stores, dollar stores, wholesale clubs, etc.). That might not seem like much, but it's a good start for a brand Altria hopes will be a future growth driver.

Altria notes that an expanded retail distribution and premium store positioning helped contribute to its success. Njoy is available in more than 100,000 stores and has premium placement in more than 80% of contracted stores. Ideally, this higher visibility brings more customer awareness, and Njoy can better compete with industry leaders like Vuse and Juul (which Altria ironically used to own).

One competitive advantage Njoy has is being the first and only brand that the FDA has granted marketing approval for menthol e-vapor products. This alone won't guarantee success, but it's a major bonus as the FDA has been battling to stop the sale of menthol cigarettes.

Altria still has some work to do amid declining ranks of smokers, but Njoy's initial success should be encouraging for investors.

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Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.