One of the best ways to support portfolio growth is to invest in high-quality dividend stocks. But with so many dividend stocks, trying to choose the best opportunity can be daunting.
Recent moves from management could suggest that Altria (MO +2.94%) is a good buy right now. Let's find out if the stock is undervalued and assess if Altria deserves a spot in your portfolio.
Big tobacco is at a crossroads
For the 12 months ended Dec. 31, 2023, the cigarette industry at large experienced an 8% volume decline. On the surface, this isn't entirely surprising. The last few years have been rough for the cigarette maker as consumer preferences shifted due to rising interest in health and wellness, as well as a tough macroeconomy featuring unusually high inflation.
In the midst of the changing landscape for tobacco, Altria has made some savvy acquisitions. The company bolstered its cigarette portfolio to include nicotine pouch brand On, as well as vaping company Njoy.
Last year Altria expanded Njoy's distribution to 75,000 brick-and-mortar locations, surpassing the initial goal by 5,000 locations.
Nicotine pouches fall under the classification of oral tobacco. Despite waning trends in cigarettes, shipping volumes in the oral tobacco industry increased 7.5% in the U.S. for the last six months of 2023. By comparison, volumes only rose by 1% during the last six months of 2022. These trends could be an encouraging sign that Altria is making progress beyond its legacy cigarette brands, and could be on a path to reignite growth.
Image source: Getty Images.
Putting shareholders first
Altria is part of the Dividend Kings -- an established list of companies that have raised their dividends for at least 50 years. But given Altria's challenges at the moment, some investors might be wondering if the dividend is at risk.
Keep in mind that this isn't the first time Altria faced challenges in the macroeconomic environment and a shift in consumer preferences. Meanwhile, a recent filing with the Securities and Exchange Commission (SEC) unveiled Altria's plan to sustain the dividend and continue rewarding shareholders.
NYSE: MO
Key Data Points
Altria is planning to sell part of its stake in beverage giant Anheuser-Busch InBev. Per the terms of the deal, Altria should expect to generate about $2.4 billion of proceeds.
Additionally, the filing reveals that Altria will be using the proceeds to accelerate its share repurchase program. This could suggest that management believes Altria stock is undervalued.
Moreover, by repurchasing shares, Altria is also helping solidify its ability to sustain the dividend for years to come.
Should you invest in Altria stock?
As of the time of this article, Altria boasts a price-to-earnings (P/E) ratio of 9.8 -- far below the S&P 500's P/E of 28.4.
When it comes to investing in Altria, there are some important things to consider. On the one hand, the core cigarette business is on the decline -- and this is a trend that could very well continue. Moreover, while the company's moves into nicotine pouches and vaping could help turn the ship around, these growth drivers are in early innings.
On the other hand, it's hard to ignore management's plan to buy back shares and ensure a sustained dividend. With Altria stock barely trading above three-year lows, now could be a tempting opportunity to scoop up shares at an 8.8% dividend yield.
I see Altria as a good opportunity overall, especially for investors looking for some reliable passive income at a discount to the market.
