Might Ultrahigh-Return Altria Contribute to Your Millionaire Retirement?
There are plenty of reasons to appreciate Altria (MO, -0.66% drop), especially if you're a dividend investor. However, there are also some significant concerns that you should give some thought to, particularly if you're banking on Altria's dividend to make you a millionaire.
No company is without its flaws, so you've got to deal with the bitter along with the sweet. But if you're fantasizing about retiring rich off Altria's dividend, you'll need to think long and hard about the drawbacks.
Altria rules the roost
To give due credit, Altria owns the premier brand in its category in North America. And it's not even close when you consider the market share figures. Altria controlled a whopping 45.7% of the cigarette market in the third quarter of 2024, with the Marlboro brand alone accounting for an impressive 41.7% of that share. In plain English, Altria's Marlboro brand is the undisputed king of the category.
The strength of the Marlboro brand has been instrumental in Altria increasing its dividend year after year. And with a yield of 7.3% today, it's a no-brainer for income-focused investors to give Altria a second look.
Consider that yield for a moment. If Altria were to bump up its dividend by just 2.7 percentage points, you'd likely be looking at the 10% total return that investors typically expect from the broader market over time.
For those already enjoying retirement, buying into Altria seems like an opportunity to set yourself up for a lifetime of plush dividend payments. For those not quite ready to tap into that income stream, dividend reinvesting would allow the payouts to snowball over time. It's not unrealistic to think that Altria could help you retire a millionaire. There's just one hitch: the product.
Altria's up against a powerful headwind
Cigarettes are losing their appeal in the North American market that Altria operates in. Possessing the most high-profile premium cigarette brand in a market that's effectively shrinking isn't exactly a dream scenario for shareholders in the long run. The numbers are getting worse, not better.
In 2022, Altria witnessed a 9.7% decline in cigarette sales. In 2023, the drop was even steeper at 9.9%. And through the first nine months of 2024, the drop was a whopping 10.6%. Granted, that trend could reverse someday, but are you willing to put your retirement on the line for that bet?
So far, Altria has managed to offset those declines with price hikes. That's great, for now. But eventually, price hikes are likely to exacerbate volume declines.
At that point, the price hikes might have to slow down or even stop. Or the company may need to consider cutting its dividend to conserve cash.
The other major issue here is that Altria is well aware of the problem and hasn't had much success addressing it yet.
It has tried, such as buying a stake in Juul and a marijuana company, but neither venture panned out, resulting in massive write-offs.
The recent acquisition of vape maker Njoy appears to be going better, but the business is too small to make a significant impact on Altria's bottom line (it's still classified in a catch-all "other" revenue category). Is it smart to risk your retirement on the success of a small business that's not even big enough to stand on its own yet?
Altria is a high-risk, high-yield stock
Altria has a rich history, but the future is unlikely to resemble the past given the changes underway in the cigarette market. The company is doing its best to adapt, but Wall Street is skeptical that it will succeed, which is why the dividend yield is so high.
Given the failures so far and the limited success of the one new business that the company hopes will save its cigarette business, most income investors should approach this with extreme caution. Could Altria help you retire a millionaire? Sure, but it could also leave you bankrupt. The risk/reward equilibrium is probably skewed too far towards risk right now for all but the most daring investors.
In light of the declining appeal of cigarettes in the North American market, further investment in Altria might require a significant leap of faith. Despite the high dividend yield, the company's reliance on a shrinking market and its limited success in diversifying its portfolio could pose potential risks to an investor's retirement savings.
Considering Altria's high-risk status, it's crucial for investors to weigh the potential rewards against the risks associated with their finance decisions, especially when it comes to long-term investing involving money. The company's ability to navigate the changes in the cigarette market and drive profitability from its alternative business ventures will be essential in determining the future trajectory of its stock and dividend payments.
