Over the long run, Altria Group (NYSE:MO) and British American Tobacco (NYSE:BTI) have been big winners in the tobacco industry. Altria's history dates back for decades as the parent company of Philip Morris USA, while British American recent purchased the remaining stake of Reynolds American that it hadn't already owned. Now, both companies face regulatory threats that could endanger their future in the U.S. market. That has investors wondering which stock is the smarter pick right now. Below, we'll provide some quantitative analysis as well as a look at the companies' business fundamentals to help you decide whether Altria Group or British American Tobacco is the better fit for your stock portfolio.

Valuation and stock performance

Neither Altria nor BAT has seen very good returns lately. British American is down 15% over the past 12 months, while Altria shares have fallen 21% since March 2017.

It's almost impossible to compare stocks based on trailing earnings right now, because the recent impact of tax reform has dramatically affected the reported net income of stocks that have exposure to the U.S. market. However, when you look at projected future earnings, Altria looks modestly cheaper than its British counterpart, with a forward earnings multiple of just under 14 compared to BAT's stock price at about 15 times forward earnings. That's a relatively minor difference, but it reflects fairly closely the difference in share price performance over the past 12 months and gives Altria a slight valuation edge.

Sign with Altria name and multi-colored square logo.

Image source: Altria Group.


Both Altria and BAT have done a good job in paying healthy dividends to their shareholders. British American's current yield is a little higher at just over 5%, but Altria's 4.7% dividend yield isn't too far behind.

Both companies have also built up a solid history of dividend growth. It's a bit more challenging to measure British American Tobacco, but when you look at payments denominated in British pounds, you can see a steady trend toward dramatically higher total dividends over time. The stock just recent switched from the European method of unequal semi-annual payments to steadier quarterly payments, so it'll be interesting to see how these dividends rise going forward. For Altria, a nearly half-century track record of consistent dividend increases has benefited shareholders once you factor in the impact of spun-off businesses along the way.

Overall, BAT has a slight edge on the dividend front, but it's pretty small. Altria is also a solid choice for a dividend investor.

Growth prospects and risks

Both Altria and BAT face many of the same risks. Above all is the recent move from the U.S. Food and Drug Administration to regulate nicotine levels in cigarettes and possibly other products as well. Both Altria and British American would have trouble with complying with directives that would force nicotine levels below the amount considered necessary to avoid addiction, and that poses a business threat to each.

There are ways in which the companies differ, though. Altria has its major stake in Anheuser-Busch InBev, which offers at least modest diversification to go with holdings like its Ste. Michelle Wine Estates wine business. BAT is more concentrated on cigarettes. Both companies are exploring reduced-risk products, but BAT is arguably doing more of its work in-house, compared to Altria's partnership with its former international subsidiary to do research on alternative products more collaboratively.

Perhaps most importantly, BAT has its international operations to fall back on. Altria is purely domestic and would essentially have its sole source of cigarette revenue taken away if it couldn't sell to the U.S. market because of new FDA regulations. BAT maintains a huge presence around the globe, and other regulators are likely to be more lenient than the U.S. in allowing tobacco sales.

Overall, that last factor is enough to tip the scales toward British American Tobacco. Altria has an outstanding history, but with rising risk levels associated with the transformation in the industry, the geographical diversification that BAT offers is worth a lot.

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.