Altria (NYSE: MO), the largest tobacco company in America, might not seem like a reliable long-term investment. It owns Marlboro, the top cigarette brand in the country, but adult smoking rates in the U.S. have steadily declined over the past six decades. It also spun off its higher-growth overseas business as Philip Morris International (NYSE: PM) in 2008.
Yet over the past five years, Altria’s stock has still rallied 56% and generated a total return of 129% after reinvesting dividends. It’s also raised its dividend 60 times over the past 56 years, making it a Dividend King that has hiked its payout for at least 50 consecutive years.
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It pays a forward dividend yield of 5.8%, compared to the 10-Year Treasury’s 4.6% yield, and it spent only 81% of its free cash flow (FCF) on dividends over the past 12 months. Let me explain why those dividends are sustainable, why its core business is still growing, and why it’s a great income stock to buy this month as some investors shun stocks during the slow summer months.
Why is Altria’s business sustainable?
For decades, Altria raised its cigarette prices, cut costs, and repurchased more shares to grow EPS even as revenue growth slowed. It expanded its portfolio of smoke-free products — including e-cigarettes, nicotine pouches, and snus — to curb its dependence on smokeable products. That’s why it acquired the top e-cigarette brand, NJOY, in 2023. The expansion of its On! nicotine pouches has also been increasing its share of the oral tobacco market.
By 2028, Altria aims to generate at least $5 billion in smoke-free revenue, equivalent to 24% of its projected sales, to offset declining cigarette shipments. It also bought back 9% of its shares over the past five years, and those buybacks will continue for the foreseeable future.
Altria is naturally insulated from tariffs and trade wars, since it produces nearly all of its products within the United States and sells them here. Its smoke-free portfolio could also benefit from an FDA crackdown on the market’s smaller alternative nicotine products.
Analysts expect Altria’s EPS to grow at a 13% CAGR from 2025 to 2028 as those catalysts kick in. That’s why its stock still looks like a bargain at 13 times this year’s earnings, and why it will remain an attractive investment even if the broader market pulls back. As many investors “sell in May and go away” for the summer, I’m still willing to buy more Altria shares.
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