Altria (NYSE: MO) stock has long been a favorite among income investors and it's clear why.
The company has raised its dividend 59 times in the last 55 years, making it a Dividend King, and it remains a dividend powerhouse based on its yield as well, as it currently offers a dividend yield of 7%.
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These days, Altria may be getting some extra attention from investors as tobacco has a well-established track record as a recession-proof product as smokers and other tobacco consumers buy the product regardless of economic conditions. That may make Altria especially attractive during the high volatility around the trade war and a weakening economy.
If you're considering buying shares of Altria or currently own the stock, you'll likely want to know where the company is headed. Let's explore that subject to learn where the domestic Marlboro maker will be in three years.
Image source: Getty Images.
Altria's current strategy
Altria was one of the best stocks to own over much of its history, but it's struggled over the last decade due to the decline of smoking and some strategic blunders, including investing more than $12 billion in Juul shortly before regulators cracked down on the flavored vape maker, and its investment in cannabis company Cronos Group was also a bust.
After selling the rights to market Iqos in the U.S., a heat-not-burn tobacco device, back to Philip Morris International, its bet on Njoy for growth in smoke-free products as Njoy benefits from having the only pod-based e-vapor product that has received marketing authorization from the FDA. Njoy is also the only FDA-authorized menthol e-vapor product on the market. That approval is key as it will ensure that the company won't face the same problems with Njoy that it did with Juul.
Altria's next-gen, smoke-free portfolio also includes on!, an oral nicotine pouch that competes with Philip Morris's Zyn, and it's working on bring a new heated tobacco product to market called Ploom under a majority-owned joint venture with JT Group called Horizon Innovations.
Of those products, Njoy, which Altria acquired in 2023 for $2.75 billion, seems to be the most promising. In the fourth quarter, Njoy consumables rose 15.3% to 12.8 million, and device shipments increased 22.2% to 1.1 million. Its retail market share of consumables also nearly doubled to 6.4%, a promising sign.
Despite Njoy's success, cigarettes still make up the vast majority of the company's business and are likely to do so for the foreseeable future. Volume sales of its cigarettes continue to fall rapidly, declining from 76.4 million in 2023 to 68.6 million in 2024, and smokeable products made up 88% of its revenue in 2024. Despite the volume decline in cigarettes, Altria managed to grow profits with the help of price hikes.
Altria's 2028 goals
Assessing Altria's position in three years is relatively easy as the company has spelled out a set of goals for 2028. The question then becomes if the company can hit those goals.
Altria is aiming to deliver mid-single digits adjusted earnings per share compound annual growth rate (CAGR) off $4.84 in 2022. In 2024, adjusted EPS rose 3.4% to $5.12, giving it a CAGR of 2.9% over the last two years.
The company expects to raise its dividend by mid-single digits annually, following a 4.1% dividend increase in 2024. It's also targeting a debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio of 2. Currently, that figure is 2.1.
Altria expects to generate an adjusted operating margin of at least 60% in every year through 2028.
Thus far, Altria has struggled to achieve the growth rates necessary to accomplish those goals, and it also stepped back from earlier goals of having Njoy be accretive to cash flow in 2025 and EPS in 2026.
Altria might not hit all of its 2028 goals, but it doesn't have to for the stock to be successful. Shares currently trades at a price-to-earnings ratio of just 12 and offers a 7% dividend yield with a proven commitment to raising it. Altria also finally seems to be on the right track with smoke-free products with Njoy after wasting several years with Juul.
In the current bearish economic environment, Altria looks like it has a good chance of outperforming the S&P 500, especially on a total return basis. The tobacco company has the benefit of competing in the consumer staples sector, selling a product that consumers buy regardless of the economy, and its dividend will reward investors regardless of the volatility of the stock market.
Overall, despite the decline in cigarette consumption, Altria seems likely to be in a better position three years from now than it is today.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cronos Group. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.
