The long-term success of Altria (MO 0.12%) arguably makes it one of the most counterintuitive investments. The declining popularity of tobacco and the billions in lawsuit settlements over the decades have not stopped the stock from rising since a Surgeon General's report in 1964 outlined the dangers of tobacco use.
Still, the stock's success does not mean investors should be blind to the benefits and risks associated with Altria stock. With that in mind, let's take a look at one significant green flag for the shares, as well as an important red flag to consider.
Green flag: Altria's dividend
When evaluating the best dividend stocks over the last few decades, you cannot ignore the dividend performance of Altria. The stock now pays $3.76 per share in dividends, an 8.5% return for new buyers.
Moreover, the payout has generally risen over the last few decades. And even when it "cuts" the payout, shareholders have experienced an increase in income.
For example, the quarterly dividend dropped from $0.75 per share to $0.29 when it spun off Philip Morris International in early 2008. However, shareholders also received stock in Philip Morris International, which also paid a dividend. This more than compensated for the lost dividend income.
Admittedly, the stock has underperformed the S&P 500 over the last five years. That might partly explain its high cash return. It might also prompt growth investors to pass on Altria.
Still, massive stock growth from the distant past played a role in making the current dividend possible. When the Surgeon General released the report on tobacco, Altria sold for a split-adjusted price of just $0.13 per share!
The stock has surged higher by roughly 18,700% since the report, and that return does not include the dividend. It also means that investors who bought the stock on that day and held it earn an annual 28-fold return on the dividend alone!
Red flag: Tobacco's dangers impact the company and its stock
However, past stock growth does not fully relieve the concerns regarding the poor reputation of its core product: tobacco. Investors often label Altria a "sin" stock due to the aforementioned health effects related to the long-term use of its core product.
Indeed, the 1964 Surgeon General's report eventually led to a decline in tobacco use. As more people became aware of tobacco's dangers, governments and private entities banned its use in most indoor public areas.
And lawsuits mounted as awareness grew about tobacco's addictive qualities and health effects. Those legal challenges led to a massive settlement in 1998, costing Altria and its peers billions of dollars.
As mentioned previously, higher legal costs and lower tobacco use did not deter stock and dividend growth. Even so, Altria has struggled to diversify. The Food and Drug Administration ordered Juul, the company that marketed an e-cigarette, to stop selling its product amid concerns about its health effects. The company is now trying to enter that business through a partnership with Japan Tobacco, but it remains unclear whether that will be a game changer for Altria stock.
Also, it pivoted into cannabis by investing $1.8 billion in Cronos Group in 2018 for a 45% stake. When considering the similarities between the tobacco and cannabis industries, that could produce synergies. Still, since Altria announced that investment, Cronos has lost 77% of its value.
Should you consider Altria?
Ultimately, investing in tobacco stocks carries significant risks. And these risks come regardless of the moral objections some investors might have. Thus, this stock is not for every dividend investor.
But Altria's high-paying dividend and the ability to increase the payout amid daunting challenges can make it a valuable addition to an income portfolio. This stock has defied the odds for nearly 60 years, and while it might underperform the indexes, income investors can significantly profit. As such, if you can stomach some of its less appealing characteristics, then Altria stock might be buy-worthy.
