Stocks are falling. Financial TV is rolling out the "Markets in Turmoil!" headlines. Uncertainty abounds over how much President Trump's tariffs will impact the U.S. economy. Both the broader Nasdaq Composite and the big-tech heavy Nasdaq-100 indexes are now down by more than 12% from their early January peaks as investors take their money out of higher-risk growth stocks, further fueling people's fears.
Not all stocks are falling, though. In times of uncertainty, investors tend to flee to safety in the form of low-risk dividend-paying stocks like Altria Group(NYSE: MO). The tobacco and nicotine giant is up almost 10% year to date and still sports a dividend with a 7% yield. With those facts in mind, should you buy Altria stock with $1,000 right now?
Pricing power and new nicotine categories
Altria is the parent company of Philip Morris USA, which primarily sells cigarettes in the United States under an array of brands including Marlboro, its best-selling brand by far. While cigarettes are still smoked widely, sales volumes in the U.S. have been declining for decades now, and they continue to. In the fourth quarter, Altria's cigarette sales volume fell by about 8% year over year.
Despite that, Altria's net revenue after excise taxes grew by 1.6% year-over-year to $5.1 billion last quarter as the company boosted its prices on packs of cigarettes by more than enough to make up for the lost sales. Its pricing power has allowed it to keep revenues rising in the face of volume declines for many years, while also increasing profit margins for the smokeables division. In 2024, smokeables operating income grew 1.4% to $10.8 billion, making up the majority of Altria's profits. With a 60% operating margin, the smokeables division is one of the most profitable businesses in the world.
Over the long term, Altria plans to significantly grow its smoke-free division, which includes nicotine pouches, electronic vaping, and potentially other products like heat-not-burn devices. By 2028, management wants to double sales of its smoke-free products to $5 billion, which would be a sizable percentage of Altria's current annual revenue of $20 billion. However, the company is well behind rivals such as Philip Morris International, where smoke-free products are close to making up 50% of overall sales right now. This will be an important segment for investors to track for the rest of the decade.
Capital returns and dividend growth
Altria's underlying business is highly profitable, but it's a low-growth market. The smoke-free products segment has some promise, but for now, it's a small part of the operation. The best feature of this stock for investors might be management's capital return strategy.
Through a combination of share repurchases and dividend hikes, Altria Group consistently grows its per-share payouts to shareholders every year. Over the last 10 years, the number of shares outstanding has fallen by 14%, and buybacks accelerated in 2024. Its dividend per share steadily climbed, and is up around 100% in the last 10 years; the current quarterly payout is $1.02 per share.
Management plans to grow its dividend per share at a mid-single-digit percentage rate annually (read: around 5% a year) through 2028. With consistent share repurchases and healthy cash generation still coming from the cigarette business, I think this is an achievable goal.
Buying shares of Altria Group stock is an easy way to get dividend income and dividend growth over the next five years. It is a perfect stock to add to a portfolio to provide a counterweight to the growth and technology names that may be sinking at the moment.
Buying $1,000 worth of Altria Group stock will give you around $70 in dividend income every year, based on the current dividend yield. With free cash flow per share of $5.01 -- the fuel for dividend payments -- and a forward annual dividend per share of $4.08, Altria has room to grow payouts by 5% a year for five years even if its free cash flow per share remains stagnant. However, over the last 10 years, Altria's free cash flow per share has grown by 103%, outpacing its dividend per share growth.
What does all this mean? For every $1,000 you put into Altria Group stock today, you will get around $70 in dividend income this year. But over the long term, the company should wind up paying you even higher amounts based on its capital return strategy. This makes Altria a fantastic dividend stock to hold during uncertain market environments. Watch those dividend payments pile up even as hypergrowth stocks experience major volatility.
Should you invest $1,000 in Altria Group right now?
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.
