If you are a dividend investor, Altria (MO 1.46%) ticks a lot of very important boxes. For example, it has a huge 8.2% dividend yield backed by a dividend that has been increased for 14 consecutive years.

But the story isn't all positive. If you buy Altria for the dividend you'll want to make sure you pay very close attention to the problems this company faces. So is it a buy, sell, or hold? 

What's the fuss?

Altria is a dividend story, so it is most appropriate for income-focused investors. Meanwhile, the dividend yield is near its highest levels over the past decade following a 40% price decline from 2017 highs. Value investors might find it of interest, as well. 

A scale showing risk from low to high with the pointer on the dial on high.

Image source: Getty Images.

But investors need to go in with their eyes open to the risks. Altria's largest business is selling cigarettes. The company produced $20.7 billion in revenue in 2022, excluding the taxes it has to charge customers. Sales in the smokeable products division, which is largely cigarettes, totaled $18.2 billion, or 88% of total sales. This is, by far, the most important business. 

The problem is that cigarette volume declined roughly 23% over the past five years. In 2018 Altria sold 109.8 billion cigarettes and in 2022 it sold just 84.7 billion. That is a dying business, with the company offsetting volume declines with price increases.

Given the nature of cigarettes, a product that tends to have loyal customers, Altria can probably keep operating like it has for a while longer. 

That said, if management doesn't find a new and growing business, the company will eventually hit a point where it can no longer support the dividend.

The problem here is that management has been trying, so far unsuccessfully, to find a growth platform that can replace its cigarette operations. Vaping and marijuana have both been billion-dollar headaches, though the company is trying again in the vaping space.

Given the track record of poor execution, investors should probably take a show-me approach here.

Buy

If you are looking to maximize the income your portfolio generates, this consumer staples company could fit the bill given its high yield and current focus on returning capital to investors via dividends.

But, given the weakening cigarette operation, it is only appropriate for investors with a short to intermediate time horizon. And then only if you are willing to track the company's progress regularly.

If -- perhaps when -- Altria hits a tipping point and needs to push harder and harder on price increases to offset volume declines, the business could end up in a downward spiral from which it will be hard to exit.

Note, for example, that it has already increased cigarette prices three times so far in 2023. This is not a dividend stock that can be put on autopilot.

Sell

If you purchased Altria with the hope of generating a multi-decade stream of income, you should strongly think about getting out. At this point, the business is operating from a position of weakness.

There are other high-yield stocks you can buy that possess stronger business fundamentals, such as 7.5%-yielding midstream master limited partnership (MLP) Enterprise Products Partners or deeply out-of-favor marijuana real estate investment trust (REIT) Innovative Industrial Properties, which has a huge 9.1% yield.

Meanwhile, if you bought Altria thinking it was a value play, or that it had turnaround appeal, you also might want to sell. At this point there's no clear catalyst to create value or turn the shrinking business around.

Without a catalyst, you are just praying that something gets better -- but history, and the societal push to stop people from smoking, suggests that's not going to happen.

Hold

The reason to hold Altria is similar to the reason to buy it. The high yield might be attractive enough to justify the risk if you own it for the yield, are willing to watch the business closely, and don't have a very long time horizon.

The dividend isn't likely to be in jeopardy over the next few years, but it is hard to put an actual date on when it might become risky. Clearly, if the cigarette business continues to shrink and management fails to find a replacement, the dividend will be at greater risk sooner.

But, even if it adds a growth business, you'll still want to tread carefully, because it will be offsetting ongoing declines in the core cigarette operation. It seems like the best outcome that can be hoped for right now is for Altria to simply tread water.

Probably best avoided

Given the headwinds Altria faces and its so far unsuccessful attempts to replace its sagging cigarette business, most investors should look elsewhere for yield and value. The risk/reward balance just seems skewed too far to the wrong side.

If you do choose to own it, though, make sure you track the business at least quarterly to make sure you aren't shocked by a dividend cut driven by the continued decline of its most important product.