Altria's Dividend Stability Amid Declining Smoking Volumes

Altria Group, a long-standing dividend favorite, faces challenges with falling cigarette shipments. Despite a solid 7% yield and maintained EPS guidance, competition and market shifts raise concerns. Is the dividend still safe? Investors weigh the risks and rewards of the tobacco giant.

Date: 03-05-2025

AI Rating: 6

Overview: Altria Group (NYSE: MO) has established a reputation as a solid dividend stock, bolstered by a forward dividend yield of approximately 7%. The company has consistently raised its dividend since 2009, making it a staple for income-focused investors. However, recent first-quarter results signal underlying challenges.

Earnings Per Share (EPS): Altria reported an adjusted EPS of $1.23 for the quarter, increasing 6% from the previous year. The company retains its full-year guidance for adjusted EPS between $5.30 and $5.45, forecasting growth of 2% to 5%. This upward guidance indicates some confidence in operational resilience; therefore, EPS performance is slightly positive as it meets expectations and reflects stability in earnings.

Revenue Growth: Overall revenue fell 4.2% to $4.52 billion, attributed to declining cigarette shipment volumes, which dropped 13.7%. This trend underscores ongoing shifts in consumer preferences and regulatory pressures, casting a shadow on long-term revenue growth. The company's strategy of raising prices has somewhat mitigated this drop, reflecting a balancing act between price increases and declining sales volume.

Free Cash Flow (FCF): Altria generated $2.68 billion in free cash flow while paying out $1.73 billion in dividends, indicating a robust coverage ratio exceeding 1.5 times. This aspect highlights the company's ability to meet dividend obligations despite revenue declines, providing a safety net for income-focused investors.

Net Income and Profit Margins: While specific figures on net income were not provided, the adjusted operating income for the smokeable segment rose 2.7%, counterbalancing lower manufacturing costs and indicating managed profitability under strained market conditions. Profit margins, while not explicitly detailed, are implied to be facing pressure due to the transitory increase in tariffs and intensifying competition within the market.

Conclusion: Despite concern regarding long-term sustainability as cigarette volumes plunge, Altria's solid FCF, consistent EPS growth, and commitment to dividend safety suggest a neutral to slightly positive outlook. Investors must navigate through deteriorating market dynamics against the backdrop of a high dividend yield, with cautious optimism on EPS performance and free cash flow sustainability.

Stocks: MO PM