Altria Has a Big Dividend Yield, but Is It Sustainable?

Core Viewpoint - Altria Group is experiencing rising earnings due to price increases, but is facing significant declines in cigarette volumes, raising concerns about the sustainability of its dividend payouts [1][10]. Financial Performance - In Q2, Altria reported a 1.7% decline in overall revenue net of excise taxes to $5.29 billion, while adjusted EPS increased by 8.3% to $1.44, surpassing analyst expectations [3]. - The oral products segment, which includes on! nicotine pouches, saw a 6% revenue increase to $728 million, with shipment volumes rising 26.5% to 52.1 million cans [4]. - The cigarette business experienced a 10.2% decline in overall shipment volumes, with Marlboro brand shipments down 11.4% and other premium brands down 13% [5]. Dividend Analysis - Altria currently pays a quarterly dividend of $1.02, totaling an annual rate of $4.08, with operating cash flow and free cash flow at $2.9 billion for the first half of the year, while dividends paid amounted to $3.5 billion [8]. - Cash flows are not covering the dividend payout for the first half of the year, which raises concerns, although the company covered $6.8 billion in dividends last year with $8.6 billion in free cash flow [9]. - The company ended the quarter with a debt-to-EBITDA leverage of 2 times, indicating that the dividend appears sustainable in the near term [9]. Market Position and Valuation - Altria's pricing power is strong, but the continuous decline in cigarette volumes poses a risk to future revenue [10]. - The company trades at a forward P/E ratio of 11.5 based on 2025 analyst consensus, which is lower than its former unit, Philip Morris International [11]. - Despite being a solid dividend play, the stock is at a six-year high, and the ongoing volume declines in its core business suggest caution for potential investors [11].