There are many things to love Altria (NYSE:MO)especially if you are a dividend investor. But there are also some very important things you need to worry about.
No company is perfect, so you always have to take the bad with the good. But if you’re hoping to retire a millionaire with Altria’s dividend, you need to think extra hard about the bad stuff.
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To give credit where credit is due, Altria owns the leading brand in its category in North America. And it’s not even close when you look at the market share figures. Altria’s market share in cigarettes was as high as 45.7% in the third quarter of 2024. The Marlboro brand alone accounted for 41.7 percentage points of that total. Simply put, Altria’s Marlboro brand is a category dominator.
The strength of the Marlboro brand has allowed Altria to increase its dividend annually for decades. And given the current dividend yield of 7.3%, it makes sense for income-oriented investors to take a close look.
Think about that return for a moment. All Altria needs to do is increase the dividend by 2.7 percentage points and you would likely get the 10% total return over time that investors typically expect from the broader market.
For investors who are already retired, buying Altria certainly seems like an opportunity to set up a lifetime of high dividend payments. For those not ready to turn on that income stream, reinvesting dividends would allow for payouts over time. It’s not unreasonable to think that Altria could help you retire a millionaire. There is only one problem: the product.
Cigarettes are increasingly falling out of favor in the North American market that Altria serves. Having the most important high-end cigarette brand in a cigarette market that is essentially drying up isn’t necessarily a great long-term proposition for shareholders. The numbers are also getting worse, not better.
In 2022, Altria’s cigarette volume fell 9.7%. In 2023 the decline was 9.9%. And through the first nine months of 2024, the decline was 10.6%. Sure, that trend could reverse, but are you willing to bet your retirement on it?
So far, Altria has been able to offset these declines with price increases. That’s great, for now. But at some point, price increases are likely to make the volume decline even worse.
At that point, price increases may need to slow down or even stop. Or perhaps the company should consider other options to save money, such as cutting the dividend.
