A "Smoke-Free" Partnership Could Breathe New Life Into This Dividend King

Key Points

• Altria Group's efforts to go "smoke-free" have been mixed at best.

• A new partnership could change this, paving the way for a return to net sales and earnings growth.

• The combination of a high dividend yield and appreciation potential makes Altria an attractive opportunity, but shares could tumble if this latest "smoke-free" gambit fails to pay off.

• 10 stocks we like better than Altria Group ›

Altria Group (NYSE: MO) is not only a Dividend King with over 50 consecutive years of dividend growth. The parent of Marlboro maker Philip Morris USA is currently the highest-yielding Dividend King out there, with a forward yield of 6.45%.

Altria's forward yield has been even higher in the past, prior to the stock's recent surge from around $40 a share at the start of 2024 to around $66 per share this month. Much of this run-up has been due to factors unrelated to the company's smoke-free diversification efforts. In fact, Altria has so far had mixed success capitalizing on the shift to tobacco-free nicotine pouch products like Zyn. Ironically, Zyn is owned by Philip Morris International (NYSE: PM), which, back in 2008, was a spin-off from Altria Group.

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Future runup, though, may be directly related to the company's smoke-free diversification efforts. Last week, there was news of a major collaboration with its South Korean counterpart. The deal could help Altria bring to market products that not only help to partially offset declines in traditional tobacco products but also get the company back on track in terms of revenue and earnings growth.

Image source: Getty Images.

Altria, dividend security, and a recent major announcement

Oddly enough, with Altria's shares rising since 2024, it appears that investors have grown more confident that the company's high-yielding dividend is secure. Admittedly, a closer look at Altria Group's financials calls this into question. During Q2 2025, its net revenue fell 3.6% year over year, with GAAP earnings per share falling 36.2%.

Even as the company's On! tobacco pouch product saw a big jump in sales recently, volumes still pale in comparison to those from market leader Zyn. For instance, last quarter, On! reported shipments of 52.1 million cans, whereas Philip Morris International shipped out 190.2 million cans of Zyn during that same time frame.

Yet while On! has so far failed to serve as a silver bullet for Altria's growth issues, a recent development could be the prelude to a much more successful smoke-free strategy. On Sept. 23, Altria announced that it has a memorandum of understanding to enter a non-binding global collaboration with South Korean tobacco giant KT&G.

This multifaceted deal includes plans for Altria and KT&G to collaborate on the development of non-tobacco nicotine pouches. Also, as part of the deal, Altria will acquire an equity stake in Another Snus Factory Stockholm AB, makers of Loop nicotine pouches. KT&G is in the process of purchasing Another Snus Factory.

How partnering with KT&G could pay off for Altria

Philip Morris International may be beating its former corporate parent on its home turf, but what if Altria starts to return the favor? That is, via the KT&G partnership, Altria could roll out On! worldwide. There may also be international expansion plans for the Loop brand.

For Altria, stronger non-U.S. growth coupled with continued modest market share gains in the U.S. nicotine pouch market may just well turn the tide, stabilizing net sales and securing modest earnings and dividend growth for years to come.

If this occurs, the impact on Altria's valuation could be meaningful. Right now, the company's shares trade for 11.7 times forward earnings. Philip Morris International trades for nearly 20 times forward earnings.

I'm not saying that this valuation gap could be fully bridged, but perhaps a partial catch-up in terms of valuation could be in the cards in the coming years.

Should you buy this stock today?

Although this recent announcement is promising, only time will tell whether it leads to a return to growth for Altria Group. Philip Morris International's first-mover advantage could limit Altria and KT&G's ability to grab a meaningful global share of the nicotine pouch market.

In my view, the combination of a high dividend yield plus potential for further multiple expansion makes Altria an attractive opportunity today. However, be well aware of the risks. If Altria's latest smoke-free gambit fails to move the needle, uncertainty about future dividends will likely spike once again. In turn, this could lead shares back toward prior lows.

Should you invest $1,000 in Altria Group right now?

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Thomas Niel has no position in any of the stocks mentioned. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.