Geopolitically driven market uncertainty has changed the way in which investors should view Altria (MO +0.82%) and its huge 7.2% dividend yield. A great many investors will likely find they still don't want to buy this cigarette maker. But there are a few that might alter their opinion in 2025, at least for a little while. Here's what you need to know to decide if Altria is a buy, sell, or hold today.
Why you might want to buy Altria in 2025
Altria's most important tobacco product is cigarettes. The nicotine in cigarettes is addictive in nature, so once a consumer starts smoking, they tend to keep smoking. This is why tobacco stocks fall into the consumer staples sector, which is generally filled with necessity items like soap and food that are bought regularly. Although tobacco is in no way a life necessity, it is bought regularly regardless of what is happening on Wall Street or in the economy.
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In fact, during difficult times, people often smoke more cigarettes. So, in times of stress, such as the one that's happening now, thanks to geopolitical issues, Altria's business can actually be fairly resilient. Now add the stock's huge 7.2% dividend yield, and you can see why an income-focused investor might want to buy Altria in 2025.
That yield is also backed by the company's very strong pricing power. For years, it has been increasing the prices of its products to support the growth of the dividend, which has been increased annually since 2009. It's a good story, but there's a wrinkle when you dig into the price increases.
Hold Altria in 2025
The reason to hold Altria in 2025 is basically the same as the reason to buy it. It has a lofty yield that doesn't look like it is at risk in the near term. Notably, the dividend payout ratio was around 60% in 2024. That's a bit high but hardly outlandish for a consumer staples stock. And, given the nature of tobacco products, it suggests that there is no near-term reason to worry about dividend safety.
NYSE: MO
Key Data Points
That said, if you have owned Altria for a number of years, you know that there's a long-term problem. Cigarette smoking is out of favor in North America, and thus, the company's volumes have been in a steady state of decline for years. In 2024, the company's cigarette volumes dropped a huge 10.2%. That's a terrible number, even if the company's price hikes have been able to offset the hit from dropping volumes.
If you do choose to buy or hold Altria in 2025, you'll want to keep a close eye on the business. It is not the type of company you can buy and comfortably hold forever, even if it can keep reliably paying its dividend in the near term.
Sell Altria in 2025
So, a big yield and a business that is likely to hold up in the face of near-term adversity are the reasons to buy and hold Altria. The reason to sell it, or to not buy it at all, is the ongoing volume declines in its most important business. It is likely that, eventually, the price hikes the company is enacting will hit a tipping point where they make the problem worse.
To be fair, Altria isn't sitting around doing nothing. It has been trying to find products to offset the decline of cigarettes. That process hasn't gone well, with missteps in the vaping and marijuana spaces. The company is trying again with vaping via its purchase of NJOY, but that is still a relatively small business. It is dealing with some problems, too, given that it is mired in a patent lawsuit with Juul.
If you prefer to own companies that are executing at the top of their game, Altria really isn't doing that. There are other high-yield stocks, like Enterprise Products Partners, Enbridge, and W.P. Carey, that have similar yields and much stronger businesses.
Altria is fine for now, but watch out in the longer term
If you are looking for a high yield from a business that will likely be resilient in the current geopolitical environment, Altria could be a good choice for you in 2025. The problem arises when you get past 2025 because the long-term trends in Altria's business are worrying. Most dividend investors will probably be better off elsewhere, but if you are willing to watch Altria closely, it could be a safe harbor, for now.
