Tobacco stocks have always been near the top of the "sin stock" heap of controversial investments, but industry bellwether Altria (NYSE:MO) brings more than you probably think to the table. You or many of your friends may no longer be smoking, but you have to go all the way back to 2011 to find the last year that Altria posted a decline in revenue. 

The growth isn't always organic at Altria. It has made some timely acquisitions to keep delivering slow yet steady top-line gains. However, between a dividend yield approaching 10% and an industry that many view as defensive, Altria is an intriguing proposition if you can get past the taboo aspects of its actual addictive businesses. Let's take a closer look at the reasons why you should or should not consider adding Altria stock to your portfolio.

Altria sign at the entrance to its headquarters.

Image source: Altria Group.

Investing unfiltered

Let's start with the coronavirus impact on Altria, since it's at the heart of most investing barometers these days. It was announced late last week that CEO Howard Willard would be taking a medical leave after contracting COVID-19. Employees in close contact with Willard have been asked to self-quarantine for 14 days.

Altria's operations have also been dramatically altered as a result of global efforts to contain the rapidly spreading pandemic. It announced last week that it will suspend operations at its manufacturing center in Richmond, Virginia, for at least two weeks after a couple of employees tested positive for coronavirus. Altria estimates that it has enough finished goods inventory to cover two months of cigarettes. A similar interruption at its Middleton operations finds it temporarily closing down the lines there with roughly three months of cigar inventory. 

The disruptions are real, and Altria stock hit a five-year low on Friday. The good news for investors approaching Altria to initiate a position is that the cascading shares have propped up the yield to a whopping 9.8%. The sustainability of any payout is naturally tethered to a company's ability to keep returning money to its shareholders, but when it raised its dividend last summer it marked an impressive run of 54 hikes in its 50-year history of distributions. 

Tobacco is also seen as a recession-resistant industry. With the economy likely expected to buckle in the coming weeks, cigarette sales are expected to hold up better than other consumer-facing products. Smoking is addictive, after all, and even with regulators rolling out even larger warnings on the packaging and marketing missives next summer, there's a long tail to the exaggerated reports of the industry's demise. 

Altria has managed to post slow yet steady growth -- in the low single digits -- for nine consecutive years. This is also a ridiculously profitable business, with net margin consistently clocking in in the double digits. A one-time charge in writing down some of the value of its 2018 investment in vaping giant Juul weighed on last year's reported results, but this also leads us to how diversified Altria's operations are these days. 

Altria is about more than the Marlboro man. It has been a player in cigarettes, cigars, and smokeless tobacco products for years, but it's also been a player in the wine industry for more than a decade. In 2018 it bought minority stakes through a $1.8 billion deal for a 45% position in Canadian cannabis specialist Cronos Group (NASDAQ:CRON) and a $12.8 billion deal for a 35% chunk of e-cigarette leader Juul Labs. Looking back at both deals isn't pretty. Cronos stock has shed more than 70% of its value over the past year, and Juul's vaping products are coming under fire worldwide given the addictive nature of e-cigarettes. 

In the end it's hard to get excited about Altria's long-term prospects. It toils away in businesses that continue to face regulatory changes that will make it harder and harder to succeed. However, with the stock's recent sell-off outpacing any potential hit to its fundamentals, it's certainly easy to see Altria winning as a short-term investment. This is a company that has returned $25 billion to its shareholders over the past five years in the form of rising dividend distributions and another $7 billion in buybacks that are propping up profits on a per-share basis. Altria is a controversial stock that may be a bad investment five or more years from now, but it has a strong possibility of beating the market in the year ahead for investors with the stomach to invest in tobacco stocks.   

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.