Altria Group's (MO 0.83%) dividend yield is a huge 7.8% today, easily toward the high end of the range over the past decade. That's largely thanks to a mix of regular dividend increases along with massive stock price declines. Shares have fallen around 16% from their highs in 2022 and are off by a whopping 38% since peaking in 2017 or so.
Does this present a buying opportunity or should investors look for other options?
The big story on Altria needs to be factored in
Altria's primary business is making and selling cigarettes in the United States under iconic brand names like Marlboro. While there has been a massive pushback against smoking, which is harmful to the health of smokers and those around them, there remains a core customer base that continues to smoke. Altria has, basically, been able to increase prices enough to mitigate the impact of the ongoing decline in smokers.
Image source: Getty Images.
While that sounds good, it isn't a great long-term story. Logically, the customer base can only shrink so far before the cigarette business is no longer a reliable cash cow. It also seems likely that price increases will eventually stress the budgets of even the most loyal smokers to the point where they trade down to cheaper products or quit. If you are expecting to live off of Altria's fat dividend yield for decades, you might want to think twice.
And that's not the only problem worth considering.
More Altria issues to ponder
The company has also made some notable missteps. One big one, that's suddenly more important, was breaking the company up into a domestic cigarette company and an international cigarette company by spinning off Philip Morris International. At the time it was an attempt to break out a faster-growing business from the U.S. operations, where the goal was simply to protect what already existed. That makes some sense, but at this point, Philip Morris International is looking to enter the U.S. market with non-cigarette tobacco products. Essentially, Altria created a new competitor.
Then there's Altria's investment in Juul, a company that makes vaping products. Altria was trying to gain an early foothold into a burgeoning new business line when it bought a stake in the young company. But Juul quickly faced regulatory scrutiny and ended up seeing much of its product line shut down by the U.S. government. Altria paid around $13 billion for a 35% stake that has since been written down to around $500 million. That's billions of dollars of shareholder money that's gone up in a puff of smoke, leaving Altria to search for a reliable way to play in the vaping space.
And then there's the company's investment in marijuana grower Cronos Group. It was trying to get an early foothold in the burgeoning pot sector, but the value of its $1.8 billion investment hasn't held up at all. At the time some industry watchers were warning that Altria had overpaid, but the numbers on Cronos' stock are truly awful -- it is down nearly 85% since 2019 when the Altria deal was inked. Another material misstep that has cost investors dearly.
Too many negatives
To be fair, Altria has a long and impressive history of paying dividends and the yield is very attractive. But for long-term investors, the backstory here should cause material concern. It seems like Altria is a bit lost in its efforts to move beyond its slowly shrinking cigarette business.
