Altria (NYSE:MO), the largest tobacco company in America, is sometimes considered a slow-growth company that hardly changes. But it's actually been in state of constant change over the past decade. It spun off Kraft Foods in 2007, then spun off its international business as Philip Morris International (NYSE:PM) the following year.

It expanded beyond cigarettes by buying cigar maker John Middleton and snuff maker UST, which added winery Ste. Michelle Wine Estates to its portfolio. It also started selling e-cigarettes in late 2014, and also took a stake in brewery SABMiller.

Altria's flagship Marlboro cigarettes.

Source: Pixabay.

Altria continues to evolve, with several major changes occurring over the past two years. Let's take a look back at the three most interesting developments, and how they're changing the Marlboro maker.

An expanded e-cig partnership with Philip Morris International

Back in 2013, Altria granted Philip Morris International the exclusive right to sell its MarkTen e-cigarettes overseas, in return for the right to sell two of PMI's "heated" iQOS tobacco products -- which heat tobacco sticks instead of burning them -- in the United States.

In 2015, Altria expanded that agreement so that the two companies could pool their research, development, and technologies to produce new e-cigarettes and other alternative smoking products.

That's an interesting partnership, since Philip Morris International CEO Andre Calantzopoulos has repeatedly envisioned a future in which traditional cigarettes are completely replaced by alternative smoking products. The global e-cigarette market, supported by that paradigm shift, could grow at a compound annual growth rate of 22.4% between 2015 and 2025, according to BIS Research.

PMI's iQOS heat sticks.

PMI's iQOS heat sticks. Source: PMI.

It's also significant because many analysts believe that PMI may buy Altria to counter British American Tobacco's (NYSE:BTI) takeover of Reynolds American (NYSE:RAI), the second largest tobacco company in America. Preemptively pooling their e-cigarette and heated tobacco resources would make a merger slightly easier to accomplish.

InBev's acquisition of SABMiller

Anheuser-Busch InBev (NYSE:BUD) recently purchased SABMiller, which Altria owned a 26% stake in. That acquisition gave Altria a 10% stake in the new company, $5.3 billion in pre-tax cash, and boosted its pre-tax earnings by $13.7 billion.

The gain from that deal, which closed last October, significantly inflated Altria's trailing earnings. That's why its trailing P/E of 10 looks very low compared to the industry average of 17 for tobacco companies. Its forward P/E of 22, however, more accurately reflects its valuation.

That big cash infusion gave Altria the ability to boost its stake in A-B InBev above 10% while still having plenty of room to keep raising its dividend (as it's done every year since splitting with PMI), buying back stock, and making new investments and acquisitions.

Acquiring Nat Sherman

That's probably why Altria acquired Nat Sherman, a privately held maker of premium cigarettes and cigars, earlier this year for an undisclosed sum. Altria will likely expand the Nat Sherman brand, which currently has limited domestic distribution, across the country to complement is core cigarette brands and its own John Middleton cigar brands.

Expanding its domestic cigarette portfolio widens its moat against Reynolds, which owns popular brands like Camel, Newport, and Natural American Spirit. Nat Sherman's "100% natural" cigarettes can likely counter Natural American Spirit, which Reynolds markets as an "additive-free" cigarette.

Acquiring additional cigar brands strengthens Altria's cigar portfolio, which posted 12% annual shipments growth last quarter -- versus a 3% decline in cigarette shipments.

The key takeaways

Altria is expected to respectively grow its revenue and earnings by 2% and 8% this year. Its core strategy will likely be to offset weaker cigarette shipments with price hikes, tighter cost controls, job cuts, and buybacks -- which will protect its earnings growth and dividend.

However, Altria is also looking toward the future with investments in alternative smoking products like e-cigarettes and heat sticks, and it has plenty of fresh cash for buying up smaller players like Nat Sherman. Therefore, Altria isn't just a dusty old dividend stock that's treading water -- it's shrewdly preparing for future challenges.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.