Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Buy, Sell, or Hold Altria?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Two days after releasing second quarter earnings, shares of cigarette and wine maker Altria (NYSE: MO  ) are up 1.5%. However, that's most likely because of a favorable federal court ruling that "severely restricted the ability of approximately 4,000 plaintiffs with so-called Engle progeny cases pending in federal court to use findings by the prior Engle jury to meet their burden of proof at trial," quoting a company press release.

This means that plaintiffs in those 4,000 Floridian cases cannot use the prior case to claim that cigarettes smoked by the plaintiffs are defective and addictive and that the companies had agreed to keep those facts hidden. Instead, they'll have to establish those claims for each lawsuit. Shares of Reynolds America (NYSE: RAI  ) and Lorillard (NYSE: LO  ) were also up on the news.

While that's a blow to people suing Big Tobacco, it's good news for the companies, as it seems to reduce the potential legal liabilities of Altria and the others. Does this make for a buying opportunity? Here's a quick look at some arguments for the three possibilities.


  • Strong dividend: The yield currently sits at 6.4% and has been steadily raised for decades. And cash flow is more than enough to cover it.
  • Acquisitions: In early 2009, Altria acquired UST, producer of Copenhagen and Skoal brand smokeless tobacco. In 2007, it acquired John Middleton Co., maker of cigars and pipe tobacco. These are smart, tuck-in acquisitions that sell complementary products to Altria's main line of cigarettes. As they grow, they'll begin to replace the revenue lost from the 2008 spinoff of Philip Morris International (NYSE: PM  ) .


  • Evil company: As I wrote when I asked the same question for Philip Morris, Altria is the ultimate sin stock, taking advantage of the ability to addict people to a self-damaging product. Not only tobacco, but Altria is also in the alcohol business, owning the Ste. Michelle winery in Washington state, producer of Chateau Ste. Michelle and Columbia Crest, as well as wineries in other regions. It's not a matter of making money in the market; it's a matter of doing the right thing and not owning it.
  • Declining volume: Increasingly, cigarette smoking is becoming more stigmatized here in the U.S. Volume is declining, falling 10.2% in the just-reported Q2 and by 5.9% so far this year. This isn't made up for by increasing volume in cigars and smokeless products because the revenue contributions of those two lines are so small relative to the $3.7 billion brought in by cigarettes last quarter. This volume drop is a multi-year trend.


  • Good dividend: Even though volume shipped may be going down, the dividend is still tempting enough to make holding shares a "good enough" decision.

The final call:

While I don't buy into the sin-stock argument, I also don't think that Altria makes for a good long-term investment today, so I come down for the "sell" position. Declining volume is a real worry, and revenue is difficult to make up by increasing the price, especially in these tough economic times. And while the recent legal win by Altria and the others is good news for the company, there is still the very large liability from the Master Settlement Agreement of several years ago. Altria has to pay its share of billions of dollars a year in perpetuity, which puts an enormous, permanent cash drag onto the company.

Add in the fact that the dividend may not be as safe as some believe -- it has taken up 86% of the last year's worth of free cash flow (in line with management’s plans), leaving just $435 million for other uses -- and I believe that, for a tobacco investment, Philip Morris is the better choice.

Fool analyst Jim Mueller owns shares of Philip Morris and works with the Motley Fool Stock Advisor newsletter. Philip Morris International is a Global Gains selection. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1244805, ~/Articles/ArticleHandler.aspx, 10/21/2016 11:43:52 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

6/12/2015 4:05 PM
LO.DL $0.00 Down +0.00 +0.00%
Lorillard CAPS Rating: ****
MO $63.70 Up +1.85 +2.99%
Altria Group CAPS Rating: ****
PM $96.31 Up +0.74 +0.77%
Philip Morris Inte… CAPS Rating: ****
RAI $53.78 Up +6.61 +14.01%
Reynolds American CAPS Rating: ****