Altria’s core market is shrinking, but its business is evolving.
The company is expanding its smoke-free portfolio and aggressively cutting its expenses.
Altria’s low valuation and high yield make it a good defensive play in a crowded market.
10 Stocks We Like Better Than Altria Group
The S&P 500 is up nearly 16% this year and is hovering near its all-time high. It looks historically expensive at 31 times earnings, and several near-term headwinds — including lingering inflation, higher Treasury yields, geopolitical conflicts, and the Trump administration’s unexpected policy changes — could compress those valuations.
However, investors should remember that much of the S&P 500’s rally was driven by high-growth tech giants. Nvidia, Apple, Microsoft, Amazon, Alphabet, Metaand Tesla. Those “Magnificent Seven” companies still account for more than a third of the index’s total market cap and often overshadow its smaller and less popular stocks.
But if we look beyond the Magnificent Seven stocks, we see many undervalued stocks in the S&P 500 that are trading below their all-time highs. Some of them even pay high dividends – and they can attract more income investors when interest rates fall. One of them is stocks Altria (NYSE:MO)America’s largest tobacco company. It’s currently trading 14% below its all-time high, but I believe it’s still a great dividend stock to buy and hold forever.
Altria, once known as Philip Morris, dominates the domestic cigarette market with its flagship Marlboro cigarettes. In 2008, Altria ceased its foreign business as Philip Morris International. At the time, Altria planned to right-size its shrinking domestic business as PMI expanded into high-growth overseas markets.
With the adult smoking rate in the US sinking to multi-decade lows, Altria may seem like a shaky investment at first. From 2019 to 2024, its annual shipments of smokable products (cigarettes and cigars) fell from 103.45 billion sticks to 70.34 billion sticks, its retail cigarette market share fell from 49.7% to 45.9%, and Marlboro’s share fell from 41% to 41%. But over those five years, Altria’s revenue (net of final taxes) still grew at a CAGR of 0.7% as its adjusted EPS grew at a CAGR of 3.9%.
The company has achieved steady growth through price increases, cost reductions and buybacks to increase earnings per share (EPS). It also divested some of its non-core assets (including its winemaking division) and expanded its portfolio of smoke-free products – including e-cigarettes and nicotine pouches.
Altria still generated 87% of its revenue (net of excise taxes) from its smokable products in 2024, but plans to reduce that percentage over the next few years. A major catalyst is the acquisition of major e-cigarette maker Njoy for $2.8 billion in 2023. The acquisition is expected to be accretive to its EPS growth in 2026.
Altria also plans to sell nicotine pouches (which are managed separately by its Helix Innovations subsidiary) and new heated tobacco products — which electrically heat tobacco sticks instead of burning them — to curb the company’s long-term reliance on traditional cigarettes.
Altria expects to generate $5 billion in smoke-free revenue by 2028. That would equate to about a quarter of its $20.4 billion in revenue (net of final taxes) in 2024. As it expands that nascent business, it will continue to streamline its business and strive to achieve its annual cost of “Optateim” to at least $6 million. savings over the next five years. It also initiated a new $1 billion buyback plan last year (equivalent to about 1% of its market cap).
From 2024 to 2027, analysts expect Altria’s adjusted EPS to grow at a CAGR of 4% as those tailwinds kick in. At $59, it looks cheaper than 11 times next year’s adjusted earnings. As for its dividend, the company increased its payout every year after PMI closed. It spent just 75% of its free cash flow (FCF) on those dividends over the past 12 months, leaving plenty of room for future dividend growth. It currently pays a hefty forward dividend yield of 7.2% — much higher than the 10-year Treasury’s 4.1% yield.
Altria’s low valuation and high dividend yield should limit its downside potential, and should attract more defensive investors if the broader market cools. So while the tobacco giant won’t overtake the Magnificent Seven anytime soon, it’s still a reliable S&P 500 dividend stock to buy and hold forever.
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Leo Sun has positions in Altria Group, Amazon, Apple and the Meta platform. The Motley Fool has positions on and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Philip Morris International and recommends the following options: long January 2026 $395 calls on Microsoft and January 2026 $405 calls on Microsoft. Motley Fool has a disclosure policy.
1 Magnificent S&P 500 Dividend Stocks Down 14% to Buy and Hold Forever was originally published by The Motley Fool
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