In times of turmoil and uncertainty, investors often flock to consumer staples. That has occurred yet again in 2025. Altria Group (MO -1.25%) has posted a total return of 17% year to date, compared to a measly 2% return for the S&P 500 index. With domestic rights to the tobacco brand Marlboro, among other assets, the company has long been a reliable dividend stock, and it boasts a sky-high dividend yield of 6.8% as of this writing.
Should you buy shares of Altria Group to ride out market volatility? Here are the positives and negatives of owning the tobacco stock right now.
NYSE: MO
Key Data Points
Declining cigarette volumes
The largest selling point against Altria Group and its cigarette business is the rapidly declining usage of cigarettes in the United States. While good for society, it is a headwind to Altria's bottom line, with gradually declining demand for the company's core product. And this trend may be accelerating as Marlboro volumes fell 13% year over year last quarter, one of the worst volume performances in the company's history.
Altria has been able to counteract volume declines with price increases. Smokeable net revenue after excise taxes only dipped 4.1% last quarter with operating income up 1.2% to $2.47 billion. Altria has long been able to prop up its bottom line despite the shrinking pool of smokers in the United States. It reported $11.62 billion of consolidated operating income over the past 12 months, a figure that has held relatively steady over the last five years.
Image source: Getty Images.
Trying to move beyond cigarettes
Just because cigarette usage in the U.S. is declining, however, does not mean nicotine usage is down. New forms of nicotine consumption have popped up in recent years, such as electronic vapor and tobacco-free nicotine pouches. Altria has made numerous investments into these product categories.
It now owns the NJOY vaping brand, which is growing market share in the U.S. (6.6% as of last quarter). Revenue and earnings from NJOY are not disclosed today, but it is a growing brand for Altria that can help make up for lost cigarette customers. Altria also owns the On! pouch brand, which grew shipment volumes 18% last quarter to 39.3 million.
One problem remains, though: It's well behind other tobacco giants in building these new nicotine businesses. For example, On! competitor Zyn, owned by Philip Morris International, is growing faster and has much larger market share. Zyn shipment volume in the United States was 202 million last quarter, up from 132 million a year ago. That means Zyn added more than the entire quarterly On! shipment volume in just one year.
Altria is behind its peers in non-tobacco nicotine, and that's not a great place for the business to be in.
Data by YCharts.
Should you buy Altria Group stock at a dividend yield of 6.8%?
Altria's dividend currently yields 6.8%, enough to generate a substantial amount of annual income. For example, if you own $10,000 of Altria stock, you would receive about $680 in dividend income for the year (before taxes). That amount will likely grow over time as well.
But how sustainable is this dividend with the company facing weakening demand for its biggest product?
Altria pays an annualized dividend per share of $4.04, while its free cash flow per share is $4.97, or 23% larger than the payout. Free cash flow is the core metric here since it represents the company's operating cash flow, less capital expenditures (money reinvested into the business). The cushion between Altria's dividend payments and free cash flow leaves it with some flexibility to maintain and grow its annual payout. At the same time, management is repurchasing stock, which reduces its outstanding share count and the total amount paid out in dividends each quarter.
So, in the short run, Altria Group should have no trouble maintaining its dividend, but it's the long run that concerns me. Record cigarette volume declines will catch up with the company eventually, and anyone looking to hold the stock for years of steady, passive income is facing this major risk. That's why I suggest avoiding Altria Group stock, even with its market-beating yield.
