Altria’s Dividend: A Smoke Screen or Solid Gold?

Altria Group (MO) presents a dividend yield of 6.6%, a number that glimmers like a golden goose in a storm. Investors, ever the optimists, prefer to admire the goose’s gizzard rather than question the sand in its diet. Since 2009, the company has dished out annual dividend increases like a magician pulling rabbits from a hat—except this hat is slowly shrinking as cigarette volumes vanish faster than a puff of smoke. The question is not whether the dividend is safe, but whether the goose is being fed by a conjurer or a charlatan.

Raised Guidance, but Questions Remain

In the second quarter, Altria’s adjusted EPS growth and revised guidance might make one believe in miracles. Revenue net of excise taxes fell 1.7% to $5.29 billion, while EPS climbed 8.3% to $1.44. One might call this progress, but let’s not confuse a sleight of hand for a standing ovation. The elephant in the room—declining shipment volumes—remains unacknowledged, like a bureaucratic memo buried in a drawer.

The on! nicotine pouches, Altria’s latest act, saw shipment volumes rise 26.5% to 52.1 million cans. Revenue in the oral products segment climbed 6% to $728 million, while adjusted operating income jumped 10.9% to $500 million. A promising encore, perhaps, but it’s the equivalent of a juggler keeping two oranges aloft while the rest of the circus is on fire. Total shipment volumes for all segments fell 1%, a statistic that would make even the most jaded accountant raise an eyebrow.

Altria’s cigarette business, once the crown jewel of its empire, is now a slow-motion car crash. Marlboro shipments fell 11.4%, while other premium brands sank 13%. Discount brands and cigars—desperate attempts to recapture relevance—showed growth, but even this is a Pyrrhic victory. The smokeable segment’s revenue net of taxes dropped 0.4% to $4.6 billion, and adjusted operating income rose 4.2% to $2.95 billion. A minor triumph, but the fire beneath the brazier is dimming.

The Njoy e-vapor business, now entangled in a patent dispute with Juul, resembles a legal tango where Altria has stepped on both feet. After losing the trial and its appeal, the company redesigned its Njoy Ace product—a Houdini act to escape patent traps. Whether this new act will save the show remains to be seen, but the audience is already yawning.

Is the Dividend Safe?

Altria’s quarterly dividend of $1.02 (or $4.08 annually) is a siren song for investors. In the first half of the year, the company generated $2.9 billion in operating cash flow and free cash flow, while paying $3.5 billion in dividends. A tightrope walk, to be sure, but last year’s free cash flow of $8.6 billion covered $6.8 billion in dividends. However, the second half is a gamble—a high-stakes poker game where the house has a slight edge, but the deck is marked.

The balance sheet, with a debt-to-EBITDA ratio of 2 times, is a life preserver in a storm. Yet, the real danger lies in the relentless decline of cigarette volumes. Price hikes, once the tobacco industry’s magic wand, are now a tired trick. Even with on!’s growth, it remains a small cog in a rusting machine. As for the forward P/E ratio of 11.5, it’s a bargain basement price for a company whose core business is slowly evaporating—though one might prefer Philip Morris International’s sprightly dance over this waltz of decline.

Altria is a dividend play for those who believe in alchemy. But with the stock at a six-year high and its core business in freefall, it’s a pig in a poke for the unwary. The goose may still lay golden eggs, but the farmer is running out of feed. 🚭

2025-08-04 04:15

Raised Guidance, but Questions Remain

Is the Dividend Safe?

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