Best Stock to Buy and Hold Forever: Altria Group vs. Philip Morris International

There hasn't been, and may never be, a more resilient industry than tobacco. Despite smoking rates in the United States peaking many decades ago, the top tobacco stocks are still megacap behemoths that pay and raise shareholder dividends each year. Among them are Altria Group (NYSE: MO) and Philip Morris International (NYSE: PM), former sister companies that sell Marlboro cigarettes in the United States and internationally.

The companies have diverged significantly since separating in 2008. Today, emerging smoke-free nicotine products, from oral pouches to vapes, have breathed new life into the industry.

But which tobacco giant is the better stock to buy and hold forever?

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Smoke-free products will become increasingly important

Cigarettes are a unique product due to their addictive properties and the industry's high regulatory barriers. Altria has managed to continuously offset declining cigarette volumes with price increases, eking out modest growth to fund dividend increases. The company is a Dividend King, with more than 50 years of uninterrupted dividend growth.

Philip Morris has enjoyed a large, but lower-margin, international market. One major difference is that it chose to aggressively pursue new products. Philip Morris launched a heated tobacco brand, Iqos, more than a decade ago and acquired Swedish Match, the maker of the leading nicotine salt pouch brand Zyn, in 2022.

Smoke-free products now account for 41.5% of Philip Morris's total net sales, while Altria still relies almost entirely on smokable products.

What makes Philip Morris the winner

Altria's legacy Marlboro brand is resilient to almost the point of embarrassment, so investors shouldn't panic yet. The company still has time to establish itself in the smoke-free space. That said, it still must prove it can do it. Altria failed miserably with its Juul investment, and its On! nicotine pouch brand lags Zyn in the U.S. market.

Meanwhile, Philip Morris has a years-long track record of ramping up Iqos in international markets and is rolling it out in the United States. Zyn has faced competition, but remains the industry leader and is growing by leaps and bounds as the broader market for oral nicotine pouches continues to soar.

If Altria doesn't make meaningful progress in the next few years with a cigarette alternative, such as a heated tobacco or vaping device, Iqos and other smoke-free products could really start to pressure its cigarette business. If volume declines accelerate, they could quickly turn Altria's business on its head.

Right now, Philip Morris has clear competitive advantages in the smoke-free arena, which positions it well for the long term. Until Altria Group can deliver tangible results outside its core business, it's a no-brainer for investors to buy and hold Philip Morris.

Justin Pope has positions in Philip Morris International. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.