Is High-Yield Altria Stock Worth the Accelerating Risk Profile?

The S&P 500 index has a paltry 1.2% dividend yield. The average consumer staples stock has a yield of 2.7%. Consumer staples maker Altria (NYSE: MO) has a dividend yield of 7.4%. If you are a dividend-focused investor, Altria's high yield will probably catch your attention. But is it worth buying into that lofty yield?

What does Altria do?

As noted, Altria is a consumer staples company. That means that it makes products that consumers buy regularly regardless of the economic environment. However, there's a slight difference between Altria and most other consumer staples makers. A company like Procter & Gamble makes toiletries and paper goods. A company like General Mills makes food. These are life necessities. Altria's primary product is cigarettes.

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Cigarettes are not a necessity at all. They only get lumped into the consumer staples space because of the addictive nature of nicotine. That is what drives cigarette smokers to keep buying cigarettes during good economic times and bad ones. In fact, it isn't hard to envision a scenario where cigarette demand increases during a recession as people out of work might have more opportunities to smoke than they did when they were working. That is, quite literally, what happened during the coronavirus pandemic when nonessential businesses were shut down and people were working from home.

This, however, is where things get interesting. It is without a doubt true that 2020 was a good year demand-wise for Altria's cigarette business. But that "good" year meant that cigarette volumes only declined by 0.4% compared to 2019. And that is the issue that investors need to grapple with when they consider Altria's huge 7.4% dividend yield.

This trend is not Altria's friend

Altria only operates in North America, where smokable tobacco products have been increasingly shunned by consumers. There's a good reason for that, given the negative health consequences of smoking cigarettes. That said, the trend has been getting worse, and 2024 was a particularly troubling year. But it pays to go back to 2020 to see just how bad things have gotten.

As noted, Altria's cigarette volume only fell 0.4% during pandemic-hit 2020. In 2021, volume dropped 7.5%. In 2022 the decline was 9.7%. In 2023 that increased to 9.9%. And in 2024, the volume decline broke the 10% level, coming in at a drop of 10.2%. Altria's most important business is facing a shocking pace of decline that looks like it is picking up speed.

To be fair, the company, like other cigarette makers, has been offsetting the declines with price increases. That is how it has been able to afford to support, and increase, its dividend. But Altria's cigarette business is very clearly shrinking, and the company's ability to increase prices can only last for so long before higher prices actually make the declines worse. The ongoing volume decline is the most important risk that investors need to consider when they buy Altria.

Altria is trying, but it hasn't yet succeeded

Altria isn't ignorant to the situation it faces. It has been trying to find a business that can replace cigarettes. But early investments in vaping products and marijuana didn't work out and led to massive one-time charges. The company's latest investment in vape maker NJOY has ended up embroiled in a patent fight (ironically with Juul, Altria's failed first investment in the vaping space) that could end up being a significant problem. Meanwhile, competitors are increasingly encroaching on the U.S. market with their own non-cigarette tobacco products.

Essentially, Altria isn't executing well with its most important product and isn't executing well in its effort to find a new growth platform. For the average dividend investor, it's probably not worth the accelerating risk. If you buy this stock, make sure you fully understand just how troubled the business is today. This is not a set-it-and-forget-it dividend stock.

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

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Reuben Gregg Brewer has positions in General Mills and Procter & Gamble. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.