Want $1,000 in Dividend Income? Here's How Much You'd Have to Invest in Altria Stock
Tobacco stocks have long been popular among income investors. Few industries have had the same luxury of selling a recession-proof product at wide profit margins, which has allowed tobacco companies to return much of their profits to investors in the form of dividends.
Altria (NYSE: MO) certainly fits the bill here, and the stock had an incredible run of almost 50 years. Through 2014, it delivered an average annual total return of 20.6%, according to Wharton professor Jeremy Siegel. That's on par with Warren Buffett's long-term track record as the head of Berkshire Hathaway.
The domestic Marlboro parent has struggled in the past decade, but it remains an appealing dividend stock with an 8.4% yield. At that level, you would have to invest just $11,900 in shares of Altria to earn $1,000 in annual dividend income.
Is it worth it? Let's take a closer look.
Image source: Getty Images.
Should you buy Altria for the 8.4% dividend?
Altria's dividend looks safe for the time being, but it's no secret the tobacco industry is facing significant headwinds. Smoking rates are declining, especially in the U.S.
For years, the company has been able to raise prices to offset declining cigarette sales, but that strategy may be reaching its limit. Revenue fell 2.5% to $5.58 billion in the first quarter, and adjusted earnings per share were down a similar percentage to $1.15. Most concerning, however, was the 10% decline in cigarette shipment volumes during the quarter.
Altria has also fallen behind rivals in developing next-generation products, such as e-cigarettes. It previously sold the U.S. distribution rights for IQOS to Philip Morris and is now betting on NJOY, which is much smaller than its rivals. Philip Morris is generating over 40% of its gross profit from next-gen products, which include Zyn nicotine pouches and IQOS.
Owning Altria is still a reliable way to collect dividend income, but there are other tobacco stocks, like Philip Morris and British American Tobacco, that also offer generous dividends while looking better positioned for the industry's long-term shift away from cigarettes.Should you invest $1,000 in Altria Group right now?
Before you buy stock in Altria Group, consider this:
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*Stock Advisor returns as of June 3, 2024Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends British American Tobacco P.l.c. and Philip Morris International and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.
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