With Altria Group's (MO -0.29%) forward dividend yield at 6.6%, investors tend to be more concerned about the company's dividend than its earnings momentum. The company has increased its payout every year since 2009, but with cigarette volumes continuing to decline, the question on many investors' minds is whether the dividend and its increased payouts are sustainable.
Let's look at the company's recent results to find out.

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Raised guidance, but questions remain
In the second quarter, Altria saw solid adjusted earnings per share (EPS) growth and raised its earnings guidance, although it is still facing headwinds.
Overall revenue net of excise taxes fell 1.7% to $5.29 billion, while adjusted EPS climbed 8.3% to $1.44. That was above analyst expectations for revenue of $5.19 billion and EPS of $1.39, as compiled by FactSet.
Altria's on! nicotine pouches, which compete with Philip Morris International's Zyn, saw strong growth, with shipment volumes climbing 26.5% to 52.1 million cans. Revenue net of excise taxes in the oral products segment that houses on! rose 6% to $728 million. Segment shipment volumes fell 1% to 198.6 million units. Adjusted operating income for the segment rose 10.9% to $500 million.
The company's cigarette business continues to experience large shipment declines, with overall shipment volumes down 10.2%. Its leading Marlboro brand saw shipments fall 11.4% in the quarter, while other premium brand shipments sank 13%. Discount brand shipments jumped 17.6%, while cigar volumes rose 3.7%.
For its smokeable segment, revenue net of excise taxes fell 0.4% to $4.6 billion. Adjusted operating income for the segment increased 4.2% to $2.95 billion.
Altria's Njoy e-vapor business is currently in a patent dispute with Juul, in which it previously had a large stake. It lost the trial and subsequent appeal, and it just recently completed a new product design for its Njoy Ace solution in an effort to work around the patents it violated.
Looking ahead, the company raised the low end of its full-year adjusted EPS outlook to $5.35 to $5.45, representing 3% to 5% growth. That's up from a prior range of $5.30 to $5.45.
Is the dividend safe?
Altria currently pays a dividend of $1.02 a quarter, or an annual rate of $4.08. The company generated $2.9 billion in both operating cash flow and free cash flow through the first six months of the year. Meanwhile, it paid $3.5 billion in dividends over the same period.
Through the first six months of the year, its cash flows are not covering its dividend payout, which can be a red flag. However, last year it covered the $6.8 billion in dividends it paid out with free cash flows of $8.6 billion, and it tends to generate much more cash flow in the second half of the year.
Looking at its balance sheet, Altria ended the quarter with debt-to-EBITDA leverage of 2 times, which is reasonable. As such, the dividend looks sustainable for the foreseeable future.
The big concern for investors is the steady, large drop in cigarette volumes. At some point, price hikes stop working, and that's a real risk. Tobacco companies have strong pricing power, but there's only so much Altria can do when fewer people are buying its products each year. And while on! is showing solid growth, it's still a small piece of the overall revenue puzzle.
From a valuation perspective, the company trades at a forward price-to-earnings (P/E) ratio of 11.5 based on the analyst consensus for 2025. That's much cheaper than its former unit, Philip Morris International, but I much prefer its international counterpart given its strong growth drivers.
Overall, Altria is a solid dividend play. But with the stock at a six-year high and its core business continuing to see big volume declines, I wouldn't be a buyer of Atria at current levels.