1 Magnificent S&P 500 Dividend Stock Down 14% to Buy and Hold Forever

The S&P 500 has risen about 16% this year and is hovering near its all-time high. It looks historically expensive at 31 times earnings, and plenty of near-term headwinds -- including sticky inflation, elevated Treasury yields, geopolitical conflicts, and the Trump administration's unpredictable policy shifts -- could compress those valuations.

However, investors should remember that most of the S&P 500's rally was driven by high-growth tech giants like Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta, and Tesla. Those "Magnificent Seven" companies still account for more than a third of the index's entire market cap and often overshadow its smaller and less popular stocks.

But if we look beyond the Magnificent Seven stocks, we'll see plenty of undervalued stocks in the S&P 500 that are trading well below their all-time highs. Some of them also pay high dividends -- and they could attract more income investors as interest rates decline. One of those stocks is Altria (NYSE: MO), the largest tobacco company in America. It's currently trading 14% below its all-time high, but I believe it's still a great dividend stock to buy and hold forever.

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A brief history of Altria

Altria, which was once known as Philip Morris, dominates the domestic cigarette market with its flagship Marlboro cigarettes. In 2008, Altria spun off its overseas business as Philip Morris International. At the time, Altria planned to right-size its shrinking domestic business as PMI expanded across higher-growth overseas markets.

Altria might initially seem like a wobbly investment as adult smoking rates in the U.S. sink to multi-decade lows. From 2019 to 2024, its annual shipments of smokeable products (cigarettes and cigars) dropped from 103.45 billion sticks to 70.34 billion sticks, its retail cigarette market share shrank from 49.7% to 45.9%, and Marlboro's share dipped from 43.1% to 41.7%. But during those five years, Altria's revenue (net of excise taxes) still grew at a CAGR of 0.7% as its adjusted EPS increased at a CAGR of 3.9%.

The company achieved that stable growth by raising prices, cutting costs, and buying back more shares to boost its earnings per share (EPS). It also divested some of its non-core assets (including its winemaking division) and expanded its portfolio of smoke-free products -- which includes e-cigarettes and nicotine pouches.

What are Altria's near-term catalysts?

Altria still generated 87% of its revenue (net of excise taxes) from its smokeable products in 2024, but plans to reduce that percentage over the next few years. A major catalyst should be its acquisition of the leading e-cigarette maker Njoy for $2.8 billion in 2023. It expects that acquisition to become accretive to its EPS growth in 2026.

Altria also plans to sell more On nicotine pouches (which are managed separately by its Helix Innovations subsidiary) and new heated tobacco products -- which electrically heat up tobacco sticks instead of burning them -- to curb the company's long-term dependence on traditional cigarettes.

Altria expects to generate $5 billion in smoke-free revenue by 2028. That would be equivalent to nearly a quarter of its $20.4 billion in revenue (net of excise taxes) in 2024. As it expands that nascent business, it will continue to streamline its business with its "Optimize and Accelerate" initiative to achieve at least $600 million in annual cost savings over the next five years. It also initiated a new $1 billion buyback plan (equivalent to about 1% of its market cap) last year.

Why is Altria an undervalued dividend play?

From 2024 to 2027, analysts expect Altria's adjusted EPS to grow at a CAGR of 4% as those tailwinds kick in. At $59, it looks dirt cheap at 11 times next year's adjusted earnings. As for its dividend, the company raised its payout every year after it spun off PMI. It also spent just 75% of its free cash flow (FCF) on those dividends over the past 12 months, which gives it plenty of room for future dividend hikes. It currently pays an hefty forward dividend yield of 7.2% -- which is much higher than the 10-Year Treasury's 4.1% yield.

Altria's low valuation and high dividend yield should limit its downside potential, and it should attract more defensive investors if the broader market cools. So even though this tobacco giant won't outperform the Magnificent Seven anytime soon, it's still a reliable S&P 500 dividend stock to buy and hold forever.

Leo Sun has positions in Altria Group, Amazon, Apple, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool recommends Philip Morris International and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.