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Why Altria Was Smoking the Market With a 10% Gain in December

By Rich Duprey – Jan 8, 2022 at 6:58PM

Key Points

  • Altria's stock had fallen nearly 20% from peak to trough in 2021.
  • An uncertain economy and runaway inflation make dividend-paying stocks a safe haven.
  • Altria still has a long future of profitable returns ahead of it.

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The tobacco giant was on fire for the entire month and is continuing into 2022.

What happened

After losing nearly one-fifth of its value between March and the end of November last year, Altria (MO 0.28%) began marching higher beginning Dec. 1 and hasn't looked back since. 

According to data from S&P Global Market Intelligence, the tobacco giant enjoyed a one-month gain of 11.1% in December and is up another 5% so far in 2022. 

There was no specific company news to account for the run up in Altria's shares, but the tobacco company was trading at a relative discount and it had reported a better-than-expected third-quarter earnings result. The end of the year could be an opportune time to buy ahead of what may be a rocky year for the stock market and as a hedge against inflation.

Dividend-paying stocks like Altria are seen as a safe haven during difficult times because they provide income when capital appreciation may be in doubt, and a Dividend Aristocrat like Altria provides a degree of consistency that also offers tax advantages.

Person breaking cigarette in half

Image source: Getty Images.

So what

Traditional cigarettes remain in a secular decline, as they have for decades. Smokers are either quitting or increasingly switching over to electronic cigarettes. Altria had been looking to go nationwide with Philip Morris International's (PM -0.62%) IQOS heated tobacco electronic cigarette, but British American Tobacco (BTI 0.77%) won a ruling from the International Trade Commission that bans the importation of the IQOS into the United States.

As e-cigs are seen as the future of the tobacco industry, and Altria had given up its own ambitions of launching a branded e-cig in favor of marketing the IQOS under its leading Marlboro brand, the import ban leaves the tobacco company without an e-cig device on the market.

Investors, though, can derive some comfort from the fact that e-cig usage, while growing, is nowhere near ready to displace traditional combustible cigarettes in the marketplace. While Philip Morris had shipped 23.4 billion heated tobacco units worldwide in the third quarter, only 221 million went to the Americas. Altria, on the other hand, had shipped more than 23.1 billion cigarettes all across the United States.

Man blowing vapor cloud from electronic cigarette

Image source: Getty Images.

Now what

Even though smoking is in decline, tobacco stocks are not what you'd call a "cigar stub" investment, one where you hope to get a few more puffs out of the company before you discard it. There are still tens of millions of people who smoke, and the decline is incremental, albeit steady.

Moreover, Altria's Marlboro brand still owns over 43% of the cigarette industry's market share, and, as noted, Altria is a Dividend Aristocrat, a company that has raised it shareholder payout for 25 years or more. Its dividend is not at risk of being cut, let alone eliminated, and with a yield of 7.2% annually, it's an attract haven for income investors.

Rich Duprey owns Altria Group. The Motley Fool recommends British American Tobacco. The Motley Fool has a disclosure policy.

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