Altria vs British American Tobacco: Dividend Yields Analyzed

Investors are weighing the high dividend yields of Altria and British American Tobacco amid declining cigarette volumes. While both have strong yields, the decreasing demand poses significant risks for long-term investment viability, especially for Altria's North American-focused operations.

Date: 28-11-2024

AI Rating: 5

The report delves into the performances of Altria (NYSE: MO) and British American Tobacco (NYSE: BTI), particularly focusing on their high dividend yields of 7.1% and 8%, respectively. The appeal of these yields is countered by the significant challenges both companies face due to declining cigarette volumes.

Revenue Growth: The analysis indicates a steep decline in cigarette volumes for both companies. Altria has seen declines of 9.7% in 2022, 9.9% in 2023, and 11.5% in the first half of 2024. This trend further continued with a 10.6% drop in the first nine months of the year. British American Tobacco has also experienced volume declines, with reductions of 5.2% in 2022, 5.5% in 2023, and a 6.9% drop in the first half of 2024. This widening gap in performance reflects an urgent need for both companies to address the declining revenue base stemming from dwindling cigarette consumption.

Profit Margins: Despite the volume declines, both companies have reportedly utilized price increases to maintain their dividend yields, suggesting a complex interplay of pricing strategy to sustain operating margins amidst falling unit sales. However, continued price hikes may exacerbate volume drops, which could ultimately compress profit margins.

Overall Analysis: The significant volume declines raise concerns about the longevity of both companies’ business models in an environment that is seemingly less favorable to traditional tobacco products. Although both Altria and British American Tobacco have impressive dividend yields, their prospects seem overshadowed by the risks of secular decline in the smoking market. Investors looking for stability and growth may find better opportunities outside these sectors.

Stocks: MO BTI PM