Altria Faces Decline Amid Strong Dividend Yield Risk

Analysts express concerns over Altria's long-term viability despite its attractive 8% dividend yield. The company's major revenue source—cigarette sales—is in decline, and reliance on a single brand poses substantial risks.

Date: 29-09-2024

AI Rating: 4

Key Areas of Concern for Altria

Altria's business relies heavily on cigarette sales, which accounted for 88% of its revenue in the first half of 2024, generating approximately $10.4 billion. However, cigarette volumes are in significant decline, with an 11.5% decrease observed in the first half of 2024. This follows several years of steadily increasing declines, demonstrating a troubling trend that many investors are aware of.

Volume Decline and its Implications

The consistent drop in cigarette volumes—from 9.9% in 2023 to 7.5% in 2021—indicates a persisting problem that Altria faces in maintaining its market share and profitability. Although the company has managed to maintain its dividend by increasing prices, there is a limit to how far this strategy can be pushed, especially in a highly competitive market where alternatives are available.

Dependence on Marlboro

Approximately 91% of Altria's cigarette volume is attributable to the Marlboro brand, giving rise to a concentration risk as the brand faces pressure from cheaper alternatives and potential erosion in market share. If Marlboro falters, the financial impact could be severe for Altria, which is particularly concerning given its historical dependency on this single brand.

Attempt to Diversify

Altria's strategy to diversify beyond cigarettes, such as its acquisition of NJOY in the vaping sector, has shown some promise with a 14.7% increase in shipment volume. However, this segment remained insignificant in terms of overall revenue, making it unclear whether it can compensate for the losses in the traditional smoking business.

Overall Assessment

The combination of declining cigarette volumes, heavy reliance on a single brand, and difficulty in diversifying into new revenue streams presents a challenging landscape for Altria. Investors contemplating an investment should consider these risks against the potential for dividend returns.

Stocks: MO