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]

Market Overview - The market is experiencing regime changes, leading to increased volatility, prompting investors to shift towards more defensive stocks [1][2] - Consumer staples are highlighted as attractive options due to their stable business models and low volatility, making them appealing during market sell-offs [2] Realty Income Co. (NYSE: O) - Realty Income is noted for its low volatility profile and income potential, offering a dividend payout of up to $3.21 per share, translating to a yield of 5.68% [4][5] - The stock is currently trading at 86% of its 52-week high, with analysts projecting a price target of $66 per share, indicating an upside of 18% [6] - The company is characterized as a stable investment, appealing to those seeking consistent income [4][5] Altria Group Inc. (NYSE: MO) - Altria Group has seen a 17.4% increase in holdings by the Royal Bank of Canada, reflecting investor confidence amid market volatility [7] - The company offers a dividend payout of $4.08 per share, resulting in an annualized yield of up to 7.44%, which is attractive for income-focused investors [8][9] - Altria's stock is trading at 95% of its 52-week high, indicating strong performance in a defensive investment strategy [9] PepsiCo Inc. (NASDAQ: PEP) - PepsiCo is currently trading at 83% of its 52-week high, with a forward P/E ratio of 18.3, which is at the lower end of its historical valuation range [11][12] - Analysts from Citigroup have reiterated a buy rating with a price target of $170 per share, suggesting a potential upside of 12.2% [13][14] - The stock has experienced a significant reduction in short interest, indicating a shift in market sentiment towards a more bullish outlook [13]

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]