British American Tobacco vs. Altria: Navigating the Smokeless Future of Big Tobacco

The tobacco industry is undergoing a seismic shift. As governments crack down on combustible cigarettes and consumers flock to reduced-risk alternatives, traditional cigarette giants like British American Tobacco (BAT) and Altria must prove their adaptability. For income-focused investors, the question is clear: Which high-yield dividend stock—BAT or Altria—offers safer long-term value as the world moves toward a "smokeless future"?

The Cigarette Decline: A Race Against Time

Both companies face shrinking cigarette sales. BAT's combustible volume dropped from 605 billion sticks in 2022 to 505 billion in 2024—a 16.5% decline. Altria's U.S. cigarette shipments fell 10.2% in 2024, with its flagship Marlboro brand losing retail share to discount brands and illicit vapes.

The stakes are high. Cigarette revenue still dominates both firms:
- BAT: Combustible products accounted for ~85% of its £25.87 billion 2024 revenue.
- Altria: Cigarettes contributed $21.2 billion (81% of total revenue) in 2024.

But neither can afford to rely on this fading cash cow forever.

The Alternative Nicotine Play: Who's Winning the Transition?

British American Tobacco: Global Diversification Pays Off

BAT's alternative nicotine segment—New Categories—is its crown jewel. In 2024, this division generated £3.43 billion, or 17.9% of total revenue, up from £2.89 billion in 2022. Key growth engines include:
- Vuse e-vapor: The FDA-approved Vuse Alto device is a U.S. market star, though illicit disposable vapes (now 60% of the U.S. e-vapor market) threaten its dominance.
- Camel Snus: Modern oral nicotine pouches are booming, with 25.5 million global users in 2023, up 14% from 2022.
- Heated Tobacco: Its Glo platform remains stable, selling 24 billion heated sticks annually.

While BAT missed its £5 billion 2025 New Categories revenue target due to U.S. regulatory delays, its global footprint (43% of revenue from the U.S., 36% from Africa/Middle East) buffers against regional headwinds.

Altria: Stuck in the U.S. Quagmire

Altria's alternative nicotine push is more domestically focused and hamstrung by illicit competition. Its smoke-free portfolio (e-vapor, oral tobacco, and energy shots) posted $2.8 billion in 2024 revenue—just 13% of total sales—a smaller share than BAT's. Key issues:
- NJOY's Struggles: The e-vapor brand's U.S. retail share dropped to 5.5%, as illicit "blunt pens" undercut pricing.
- Skoal and on!: Oral tobacco revenue rose 4% in 2024 but faces stagnant demand.
- Innovation Lag: Its $3.4 billion buyback program and 2025 $1 billion repurchase plan signal confidence, but its reliance on a shrinking U.S. cigarette market is risky.

Dividend Safety: Cash Flow vs. Structural Risks

Both stocks offer strong dividends—BAT's yield is ~5.8%, Altria's ~5.2%—but their sustainability hinges on growth in alternatives.

• BAT's Edge:
• Global Diversification: Less exposed to U.S. regulatory volatility (e.g., FDA delays, illicit vape crackdowns).
• Strong Cash Flow: Despite a 28% drop in 2024 operational profit (due to write-downs), its £4.26 billion in first-half 2024 profit still funds dividends and R&D.

• Long-Term Vision: Its "Smokeless World" strategy aims to migrate smokers to alternatives, backed by £2.4 billion in annual R&D.

• Altria's Weakness:

• U.S. Overexposure: 43% of revenue comes from a market where illicit products are eroding its e-vapor business.
• Share Repurchases at Risk: Its 2025 guidance assumes "limited impact" from enforcement actions against illicit vapes—a shaky assumption as the problem grows.
• Legacy Costs: Marlboro's declining share and trade inventory issues strain margins.

Investment Case: BAT Edges Ahead for Long-Term Safety

While both stocks face cigarette declines, BAT's global scale, faster alternative nicotine growth, and diversified revenue streams make it the safer bet. Key advantages:
1. Alternative Revenue Scale: 17.9% of revenue vs. Altria's 13%—a meaningful lead in the critical growth segment.
2. Geographic Resilience: 67% of revenue comes from regions beyond the U.S., reducing exposure to illicit vape chaos.
3. Regulatory Momentum: FDA approvals (Vuse Alto) and E.U. market access for Snus position it better for regulatory wins.

Altria's Risks Outweigh its Yield: Its U.S.-centric model and slower alternative growth make its dividend more vulnerable to regulatory shocks and margin declines.

Final Verdict: Buy BAT for Long-Term Dividend Safety

Investors seeking stability should prioritize British American Tobacco. Its global diversification, faster-growing alternative nicotine segment, and robust cash flow provide a stronger foundation to navigate the industry's transformation. Altria's U.S. overexposure and sluggish alternative growth make it a riskier choice.

For income investors, BAT's 5.8% yield—supported by 17.9% alternative revenue growth—is a better hedge against the cigarette industry's decline. Act now before the smokeless transition fully reshapes valuations.

Data as of May 26, 2025. Past performance does not guarantee future results.