If you are looking for a high-yield dividend stock to boost your income, you might be interested in Altria (MO -0.37%) or Viatris (VTRS 0.87%). Both companies offer attractive dividend yields of 8.3% and 4.7%, respectively, as of July 14.
But which one is a better buy right now? Let's compare them on three key factors -- growth, valuation, and dividend safety -- to find out.
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Growth
Altria is the largest tobacco company in the U.S., with a dominant share of over 47% of the cigarette market. It also owns equity stakes in Anheuser-Busch InBev, the world's largest brewer, and Cronos Group, a Canadian cannabis producer.
Viatris is a global pharmaceutical company that was formed by the merger of Pfizer's off-patent drug unit Upjohn and generic drug maker Mylan in November 2020. It sells a wide range of branded and generic drugs, including the erectile dysfunction drug Viagra, the cholesterol-lowering drug Lipitor, and the EpiPen auto-injector for severe allergic reactions.
Both companies face significant headwinds in their core businesses. Altria's cigarette shipments have been declining for years due to lower smoking rates, higher taxes, and regulatory pressures. Viatris' revenue has been eroded by the loss of exclusivity for some of its key drugs, as well as pricing pressures in the generic drug market.
However, both companies are also trying to diversify their revenue streams and reduce their dependence on their legacy products. Altria is investing in reduced-risk products, such as its IQOS heated tobacco system, and its oral nicotine pouches, which it sells under the on! brand. Viatris is focusing on expanding its presence in emerging markets, and complex generics, as well as launching new products from its pipeline.
In terms of growth, Altria has a clear edge over Viatris. Altria expects its revenue to grow by 2.3% over the next two years, while Viatris expects its revenue to decline by 4.7% over this same period. Altria also expects its adjusted earnings per share to increase by 7.6%, while Viatris expects its adjusted earnings per share to drop by 11.6% over this same 24-month period.
Valuation
Both Altria and Viatris trade at low valuations relative to their peers and the broader market. Specifically, Altria stock currently trades at a trailing price-to-earnings ratio of 14.6 and a forward price-to-earnings ratio of 9.1. Viatris stock trades at a trailing price-to-earnings ratio of 6.5 and a forward price-to-earnings ratio of 3.5.
However, these lowball valuations reflect the challenges and uncertainties facing both companies. Altria faces potential regulatory actions, a global slowdown in smoking rates, and competition from alternative nicotine products. Viatris faces pricing pressures within the generic drug market, debt issues, and competitive threats from both branded and generic rivals.
As such, neither company is a bona fide bargain at these levels. However, Viatris arguably has more room to maneuver. If it can successfully execute its merger synergies, pay down its debt, and launch new products, Viatris could return to healthy levels of top- and bottom-line growth within a few short years. Altria's valuation, on the other hand, is more likely to remain depressed as long as cigarette smoking keeps declining across the globe.
Dividend safety
Although Altria has consistently raised its dividend for over half a century, its payout ratio currently stands at a worrisome 119%. Viatris, by contrast, sports a far more reasonable payout ratio of 30.2%. As a result, Viatris seems to have more room to grow its dividend in the future, especially if it can boost its earnings and free cash flow in the years ahead. Altria, for its part, might be due for a rethink on its highly coveted dividend program.
The verdict
Altria and Viatris both offer generous dividend yields to their shareholders. However, both of these top income stocks are going through a trough period at the moment, marked by significant headwinds that may persist for an extended period. Between the two, however, Viatris arguably stands out as the better pick for income investors.
While Viatris still has work to do to shore up its balance sheet and return to growth on a consistent basis, the drugmaker could have a bright future if management can successfully execute its strategic plan. On the flip side, Altria is still searching for a viable long-term growth strategy with tobacco use on the decline worldwide.
