Yielding 6.5%, Is Altria Stock an Excellent Dividend Stock to Buy?

SUMMARY

Parkev Tatevosian, CFA, analyzes Altria Group's status as a dividend stock, highlighting its strong yield and profitability despite slow or declining revenue growth. The discussion addresses the company's future prospects, valuation, and the ethical considerations of investing in the tobacco industry.

MAIN POINTS

• Altria Group's dividend yield stands at 5.9%, outperforming government bonds and delivering strong returns for investors. [0:00]
• Despite declining unit sales, Altria maintains stable revenue through price increases, with analysts forecasting modest growth over the next three years. [1:00]
• The company boasts a high operating profit margin of 67.6%, making it one of the most profitable businesses in the analyst's coverage. [3:01]
• Altria is adapting to industry headwinds by exploring new growth categories and maintaining cash flow, with a discounted cash flow model projecting minimal growth. [4:02]
• A long-term growth estimate of just 1% indicates Altria will lose market share over time as global economies outpace its growth. [5:01]
• Despite slow growth, Altria's fair value is calculated at $91.35 per share, well above its current market price, supporting its case as an attractive dividend investment. [6:00]

DETAILED ANALYSIS

Altria Group currently offers a dividend yield of 5.9%, which is notably higher than the yields on 10- and 30-year U.S. government bonds. Over the past year, the company's share price has risen approximately 25%, providing investors with both capital appreciation and substantial dividend income. Despite the tobacco industry's long-term decline, Altria has managed to sustain its revenue by raising prices, even as unit sales decrease.

In the most recent period, the company reported $20.4 billion in trailing twelve-month revenue. While revenues fell slightly in 2024 and 2025, Wall Street analysts project a return to modest growth in the coming years, with forecasts of 2% growth in 2026 and smaller increases through 2028. For investors, even flat or marginally declining revenues are considered a positive outcome given the sector's challenges.

Altria's profitability remains exceptional, with an operating profit margin of 67.6%, significantly higher than its 2017 margin of 46%. This level of profitability is rare among large companies and underscores the firm's ability to generate cash despite industry headwinds. The company is trading at a forward price-to-sales ratio of 12.6, which is at the higher end of its historical range, reflecting investor optimism about its ability to maintain revenue and profitability.

Regulatory pressures and declining smoking rates continue to threaten the tobacco industry, but Altria has responded by seeking new growth categories and leveraging price increases to offset volume declines.

A discounted cash flow analysis projects Altria's free cash flow to grow only modestly from $10.07 billion in 2026 to $10.83 billion by 2031, indicating minimal growth expectations. The analyst's long-term growth estimate for Altria is just 1%, well below the anticipated 3% growth rate of the global economy, suggesting the company will gradually lose market share. Nevertheless, the calculated fair value of $91.35 per share remains significantly above the current market price of $72, supporting the view that Altria is still an attractive dividend stock from a purely financial perspective, despite ethical concerns and slow growth prospects.

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