Core Insights - Altria and British American Tobacco offer attractive yields of 7.4% and 7.7% respectively, significantly higher than the S&P 500's 1.2% and the average consumer staples yield of 2.7% [1] - Both companies face a long-term decline in cigarette volumes, with Altria experiencing a more severe decline compared to British American Tobacco [2][4] Volume Trends - Altria's cigarette volume declined by 9.7% in 2022, 9.9% in 2023, and is projected to decline by 10.2% in 2024, indicating a worsening trend [3] - British American Tobacco's volume declined by 5.1% in 2022, 5.3% in 2023, and 5% in 2024, with the latter two figures excluding the impact of the sale of its Russian and Belarus businesses [4] Business Strategies - Both companies have responded to declining volumes by raising prices, which has allowed them to maintain and even grow dividends despite losing customers [5] - British American Tobacco's global diversification has helped mitigate the impact of volume declines, but it has acknowledged significant challenges in the U.S. market [6] Future Outlook - The tobacco industry faces a bleak future unless new growth platforms are identified to replace declining cigarette operations [7] - Both companies are exploring new business opportunities, such as vaping and pouches, to address the challenges posed by declining cigarette sales [8] Investment Considerations - For short-term income investors, British American Tobacco may be the preferred choice due to its higher yield and better volume performance [9] - Long-term investors may find both companies lacking in fundamental strength to justify investment in the tobacco sector [9]

Altria (MO 1.40%) isn't a household name in the consumer staples sector, but its main brand is probably one you know. Indeed, its Marlboro cigarette brand has a nearly 42% share of the U.S. cigarette market. Add in a 7.3% yield backed by a growing dividend, and you can see why investors would be attracted to Altria's shares. Could a $10,000 investment help get you to millionaire status? Maybe, but you need to balance the reward against the risk before jumping in.What does Altria do?Altria is a consumer stap ...

Company Overview - Altria is a consumer staples company primarily focused on cigarette production, which is distinct from other consumer staples companies that produce essential goods like food and toiletries [1][2] - The company has a high dividend yield of 7.4%, attracting dividend-focused investors [1] Market Dynamics - Cigarettes are not considered a necessity, but their addictive nature leads to consistent demand, even during economic downturns [2] - Historical data shows that during the pandemic in 2020, cigarette volumes only declined by 0.4%, but subsequent years have seen significant volume declines [3][5] Volume Decline - Altria's cigarette volumes have experienced a troubling trend: a 7.5% decline in 2021, 9.7% in 2022, 9.9% in 2023, and a projected 10.2% drop in 2024 [5] - The ongoing decline in cigarette volume poses a significant risk to the company's financial health and dividend sustainability [6] Pricing Strategy - The company has been offsetting volume declines through price increases, which has allowed it to maintain and increase its dividend [6] - However, there are concerns that continued price hikes may exacerbate volume declines in the long run [6] Strategic Challenges - Altria has attempted to diversify its business beyond cigarettes, investing in vaping and marijuana, but these efforts have not yielded successful outcomes [7] - The company's latest investment in NJOY is facing legal challenges, further complicating its growth strategy [7] Investment Considerations - Altria is struggling with its core cigarette business and has not effectively transitioned to new growth platforms, making it a risky investment for dividend-focused investors [8]

Regimes are changing in the market, and this could mean a few things, but today, it means that volatility is back. Whenever these shifts come, specifically to the S&P 500 index, investors tend to decrease their exposure to riskier stocks to look for more defensive names in the market to cushion some of the risks that come with these volatility spikes. This is where names in the consumer staples sector usually come into play. These stable and predictable business models and product lines usually carry low be ...

Shipment Volumes - Total smokeable products segment's cigarette shipment volume in the United States was 68.6 billion units in 2024, a decrease of 10.2% from 2023[22]. - Total smokeable products segment's cigars shipment volume was approximately 1.8 billion units in 2024, a decrease of 1.5% from 2023[23]. - Total oral tobacco products segment's shipment volume was 774.7 million units in 2024, a decrease of 1.0% from 2023[24]. Financial Performance - Net revenues for 2024 were $24,018 million, a decrease of 1.9% from $24,483 million in 2023[419]. - Gross profit for 2024 was $14,367 million, slightly up from $14,284 million in 2023[419]. - Net earnings increased to $11,264 million in 2024, compared to $8,130 million in 2023, representing a growth of 38.5%[419]. - Basic and diluted earnings per share rose to $6.54 in 2024, up from $4.57 in 2023, marking an increase of 43.2%[419]. - Total assets decreased to $35,177 million in 2024 from $38,570 million in 2023, a decline of 8.5%[413]. - Total liabilities decreased to $37,365 million in 2024 from $42,060 million in 2023, a reduction of 11.1%[416]. - Cash and cash equivalents were $3,127 million in 2024, down from $3,686 million in 2023, a decrease of 15.1%[413]. - The fair value of long-term debt was $22.7 billion in 2024, down from $24.4 billion in 2023[411]. - Cash provided by operating activities was $8,753 million in 2024, compared to $9,287 million in 2023, a decrease of 5.7%[425]. - For the year ended December 31, 2024, net cash used in financing activities was $11,491 million, an increase of 37.8% compared to $8,374 million in 2023[428]. - The balance of cash, cash equivalents, and restricted cash at the end of 2024 was $3,158 million, down from $3,721 million in 2023, representing a decrease of 15.1%[428]. - Cash dividends declared per share increased to $4.00 in 2024 from $3.84 in 2023, reflecting a 4.2% increase[432]. - The company repurchased $3,400 million of common stock in 2024, significantly higher than the $1,000 million repurchased in 2023, marking a 240% increase[432]. Acquisitions and Investments - The acquisition of NJOY Holdings, completed on June 1, 2023, resulted in NJOY becoming a wholly owned subsidiary of Altria[436]. - The company assigned exclusive U.S. commercialization rights to the IQOS Tobacco Heating System to Philip Morris International Inc. on April 30, 2024[27]. - Altria entered a joint venture with JTI for the U.S. marketing of heated tobacco products, owning a 75% economic interest in the venture as of December 31, 2024[437]. - The company acquired NJOY Holdings for approximately $2.9 billion, consisting of $2.75 billion in cash and up to $500 million in contingent payments based on FDA authorizations[472]. - The fair value of contingent payments related to the NJOY acquisition was approximately $130 million at the acquisition date, with a remaining fair value of $20 million as of December 31, 2024[473][474]. - The company recorded a pre-tax gain of $2.7 billion in 2024 from the assignment of U.S. commercialization rights to the IQOS System, with total cash payments received amounting to approximately $2.8 billion[491]. Workforce and Diversity - As of December 31, 2024, the company employed approximately 6,200 people, with 26% being hourly manufacturing employees who are members of labor unions[49]. - The company recognizes the importance of a diverse workforce and aims to enhance diversity within its organization and leadership teams[36]. Safety and Health - The Occupational Safety and Health Administration recordable injury rate for 2024 was 1.8%, an increase from 1.2% in 2023[48]. Tax and Compliance - The provision for income taxes in 2024 was $2,394 million, a decrease of 14.5% compared to $2,798 million in 2023[565]. - The balance of unrecognized tax benefits at the end of 2024 was $282 million, down from $1,608 million at the end of 2023[566]. - The company recorded a tax benefit of $887 million in 2024 due to the reversal of an unrecognized tax benefit related to a $6.4 billion ordinary loss recognized in 2023[567]. Goodwill and Intangible Assets - Goodwill increased to $6.9 billion in 2024 from $6.8 billion in 2023, primarily due to adjustments related to the NJOY Transaction[490]. - The estimated fair value of the Skoal trademark was determined to be $3.6 billion after a non-cash, pre-tax impairment of $354 million was recorded in 2024 due to declining sales volumes[493]. - The company amortizes intangible assets over a weighted-average period of approximately 18 years, with estimated annual amortization expense for the next five years projected at $150 million[478]. - The annual impairment test for goodwill and indefinite-lived intangible assets resulted in no impairment charges for 2024, 2023, and 2022, with the e-vapor reporting unit and Skoal trademark exceeding their carrying values by approximately 28% ($0.3 billion) and 7% ($0.3 billion), respectively[494]. Financial Instruments and Risk Management - The company uses various types of derivative financial instruments to mitigate market risks, including foreign currency exchange rate risk[449]. - The company recognizes a liability for the fair value of obligations from qualifying guarantee activities, with further details provided in the financial statements[456]. Restructuring and Initiatives - The company is implementing a multi-phase Optimize & Accelerate initiative to increase organizational speed, efficiency, and effectiveness[47]. - The company expects total pre-tax charges for the Optimize & Accelerate initiative's initial phases to be approximately $100 million to $125 million, with $68 million incurred in 2024[500]. - Restructuring liabilities related to the Optimize & Accelerate initiative were $35 million at December 31, 2024, all of which were severance liabilities[501]. - The company expects to complete the design and detailed plans for all phases of the Optimize & Accelerate initiative by early 2026[499].

Valuation and Market Position - Altria Group, Inc. (MO) stock is trading at a forward P/E ratio of 10.29, which is a 23.9% discount compared to the Zacks Tobacco industry's average of 13.53, indicating that MO stock appears undervalued [1] - Altria's stock closed at $55.05, which is 5.2% below its 52-week high of $58.04, and has seen a 35.3% increase in stock value over the past year, outperforming competitors like British American Tobacco, which gained 25.2% [6] - The stock is trading above its 50-day and 200-day moving averages, suggesting a bullish trend [7] Growth Strategy and Market Challenges - Altria is transitioning towards a smoke-free future, focusing on harm reduction and innovative alternatives for adult smokers [9] - NJOY, a key part of Altria's strategy, expanded its product distribution to over 100,000 stores in 2024, with consumable shipments growing by 15% and device shipments by 22% [10][11] - Despite growth in the e-vapor market, Altria faces challenges from illicit flavored disposable e-vapor products, which account for over 60% of the category, complicating regulatory enforcement and impacting revenue potential [14][16] Financial Performance and Analyst Projections - Altria's domestic cigarette shipment volumes fell by 8.8% in Q4 2024, reflecting challenges in sustaining growth in its core revenue-generating category [16] - Analysts have lowered their projections for Altria's Q1 2025 earnings by 2.5%, with the consensus estimate now at $1.18 per share, and a 0.6% reduction for the full-year earnings estimate to $5.32 per share [17][18] - The company is implementing an "Optimize and Accelerate" initiative aimed at achieving at least $600 million in cost savings over the next five years [12]

Group 1: Dividend-Paying Stocks Performance - Dividend-paying stocks in the S&P 500 index produced a 9.17% average annual return from 1973 to 2023, compared to 4.27% for non-dividend-paying stocks [2] - Companies that return earnings to shareholders through dividends tend to behave differently and provide better returns over time [2] Group 2: Realty Income - Realty Income is a REIT that has consistently raised its monthly dividend since its market listing in 1994, currently offering a 5.8% dividend yield [4] - The company's dividend payout growth has been limited to 2.5% annually over the past five years due to rising interest rates, but potential rate cuts by the Federal Reserve could enhance growth prospects [5][6] Group 3: Pfizer - Pfizer's stock has decreased by approximately 57% since its peak in 2021, primarily due to declining sales of COVID-19 products and concerns over an upcoming patent cliff for Eliquis [7] - Despite these challenges, Pfizer offers a 6.7% dividend yield and has raised its dividend for 16 consecutive years, with total sales increasing by 7% last year when excluding COVID-19 product sales [8] - The first generic versions of Eliquis are not expected until 2031, and new cancer treatments may offset potential losses from Eliquis [9] Group 4: Altria Group - Altria Group has continued to increase its dividend payouts despite a long-term decline in cigarette smoking, with a current yield of 7.7% [11][12] - While total cigarette sales fell by 10.2% in 2024, price increases on Marlboro products helped mitigate revenue losses, resulting in a minimal decline in smokable product sales [12] - Growth in non-smokable products, particularly through the acquisition of the NJOY brand, has contributed to a 3.4% increase in adjusted earnings last year [13]

Core Insights - Altria's stock has delivered a total return of zero to investors since early November 2024, underperforming the broader U.S. equity market [1] Group 1: Company Performance - The stock's performance has lagged behind the broader U.S. equity market, indicating potential challenges in its investment appeal [1] Group 2: Analyst Background - The analysis is conducted by a Chief Financial Officer with over a decade of experience in finance, particularly in oilfield and real estate industries, and has developed a keen interest in equity research [1]

Group 1 - The consistent decline in smokeable products poses a significant threat to Altria's dividend safety and that of its peers [1] - Altria is facing challenges due to changing consumer preferences and regulatory pressures impacting the tobacco industry [1] Group 2 - The article emphasizes the importance of due diligence for investors considering Altria's stock [1] - The author expresses a long-term investment strategy focused on high-quality, dividend-paying companies [1]

Core Viewpoint - Smoking rates have been declining significantly, impacting companies like Altria that rely heavily on smokeable products for revenue [1][2] Group 1: Market Trends - Smoking rates among adults fell to less than 12% in 2022 from nearly 43% in 1965, indicating a long-term trend towards reduced tobacco use [1] - The e-vapor market expanded by 30% last year, but the illicit market holds a 60% share, complicating growth for legitimate companies [3] Group 2: Company Performance - Altria's smokeable tobacco products generated $5.3 billion in revenue, accounting for 88% of total revenue in the last quarter of 2024 [6] - The company's new product platforms, including the acquisition of Njoy, contributed only $19 million in revenue, highlighting the need for more substantial growth initiatives [7] Group 3: Investment Considerations - Altria's dividend yield is 7.8%, significantly higher than the S&P 500 average of 1.2%, but the sustainability of this dividend is questionable given the company's challenges [8] - The stock trades at 8 times its trailing earnings, which may appear attractive, but declining revenues could lead to a reassessment of its value, suggesting it may be a potential value trap [9]