Altria's 7% Yield and Nicotine Innovations: A Defensive Gem Overlooked by the Market

Investors often overlook the power of a steady dividend and the transformative potential of nicotine alternatives. Today, we're shining a spotlight on Altria Group (NYSE: MO), a dividend titan trading at a historic discount, yet sitting on game-changing products that could redefine its future. With a 7% yield, a 56-year dividend growth streak, and a stealthy shift toward smoke-free products, this stock is ripe for a re-rating. Let's dig in.

The Dividend Machine: 7% Yield with a 56-Year Track Record

Altria isn't just a dividend stock—it's a dividend warrior. With a yield of 7% (based on its May 2025 stock price of $60.61 and an annual dividend of $4.08), this company has raised its payout every year for over five decades. That's no small feat.

The dividend is rock-solid, backed by free cash flow (FCF) of $8.6 billion in 2024—more than enough to cover its $6.8 billion in dividend payments. Even with negative equity (a result of aggressive buybacks), Altria's debt-to-EBITDA ratio of 1.5x is comfortably low. This isn't a company at risk of cutting its payout; it's a cash cow.

The Growth Catalysts: On! Nicotine Pouches and the Shift to Smoke-Free

While critics focus on declining cigarette sales, Altria is quietly building a moat in the nicotine alternatives space. Its on! nicotine pouches are a sleeper hit, growing at 46% in 2024. These pouches—discreet, no-ash, and no-spit—appeal to both traditional smokers and younger users. Pair this with its NJOY e-vapor line and Ploom heated tobacco products, and you've got a full-stack strategy to combat cigarette declines.

The FDA's recent scrutiny of flavored e-cigarettes might spook some, but on! pouches are less regulated and already capturing market share. Meanwhile, Altria's $873 million impairment charge on its NJOY ACE product (due to ITC restrictions) is a temporary hit, not a death knell. The core nicotine pouch business is thriving.

Why the Market is Missing the Boat: A Discounted Valuation vs. Philip Morris

Here's where the re-rating opportunity gets juicy. Altria trades at a P/E of 9.9x, far below Philip Morris International's (PM) 37.2x. PM's premium multiple reflects its global reach and advanced smoke-free portfolio—but Altria's US dominance and similar R&D bets should narrow the gap.

On an EV/EBITDA basis, Altria is even cheaper: 8.7x vs. PM's 20.7x. This is a steal for a company generating $15 billion in annual EBITDA. The market isn't pricing in the value of its nicotine innovations or its fortress balance sheet.

Buybacks and a Turnaround in Sight

Altria isn't just sitting on cash—it's returning it to shareholders. In 2024, it spent $5.8 billion on buybacks, reducing shares outstanding by 2%. With a stock price down 14% year-to-date (as of May 2025), management has a clear incentive to accelerate repurchases.

The Bottom Line: Buy Now Before the Crowd Catches On

Altria is a contrarian gem with three unstoppable forces:
1. Defensive Income: A 7% yield with 56 years of dividend growth.
2. Growth in Disguise: on! pouches and R&D in smoke-free products.
3. Valuation Floor: Trading at less than 9x earnings vs. PM's 37x.

The risks? Sure, FDA regulations and declining cigarette sales are real. But with its cash flow, dividends, and stealth growth, Altria's valuation is too cheap to ignore. This is a buy for income investors and growth hunters alike.

Action Alert: With shares at $60.61 and the next dividend ($1.02 per share) payable on July 10, 2025 (ex-dividend June 16), now is the time to load up. The re-rating is coming—don't miss it.

Invest with conviction,
Your Investment Analyst