Altria (NYSE: MO), the largest tobacco company in the United States, is usually considered a high-yield dividend stock instead of a high-growth one. It’s raised its dividend for 57 consecutive years, making it a Dividend King with at least 50 consecutive years of dividend hikes.
Most investors own Altria for its steady income rather than market-beating gains. But this year, Altria’s stock has rallied 32% and outperformed the S&P 500‘s (SNPINDEX: ^GSPC) 9% gain. Let’s see why it crushed the market — and why it still has room to run.
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How fast is Altria growing?
Altria owns Marlboro, the top cigarette brand in America, as well as smaller brands including Parliament, Virginia Slims, Basic, and L&M. It also sells cigars and pipe tobacco products. Its smoke-free portfolio includes e-cigarettes, nicotine pouches, and snus. It also sells heated tobacco products, which heat sticks of nicotine rather than burning them.
Altria might seem like a wobbly long-term investment, since adult smoking rates in the U.S. have dropped to historic lows over the past six decades. But to offset that pressure, it constantly raised its prices, cut costs, and bought back its shares to boost its EPS. It’s also expanding its smoke-free portfolio through major acquisitions — including UST, Helix Innovations, and NJOY — to reduce its long-term dependence on cigarettes and other smokeable products.
From 2020 to 2025, Altria’s revenue (net of excise taxes) fell from $20.8 billion to $20.1 billion as its cigarette shipments declined. However, its free cash flow (FCF) grew from $8.2 billion to $9.1 billion, while its adjusted EPS increased from $4.36 to $5.42. That bottom-line growth was driven by its pricing power, low capex, cost discipline, and shrewd investments in its higher-growth smoke-free products (On! nicotine pouches and NJOY e-cigarettes).
Why is Altria a resilient dividend stock?
Over the past 12 months, Altria spent just 64% of its FCF on its dividends — so it has plenty of room for future hikes. Analysts also expect its revenue to rise again — at a 1% CAGR from 2025 to 2028 — as its rising smoke-free sales offset its declining cigarette sales. Altria expects its smoke-free revenue to rise to at least $5 billion — nearly a quarter of its projected sales — by 2028. Analysts expect its adjusted EPS to grow at a 4% CAGR from 2025 to 2028.
Over the past few months, rising Treasury yields — which hit a 19-year high of 5.3% for the 10-Year note in early October — pulled many investors away from blue chip dividend stocks. The 10-Year Treasury’s yield has pulled back to about 4.8% as of this writing, but it’s still driving up the yields of other fixed-income investments and hurting lower-yielding income stocks.
But with a forward yield of 5.7%, Altria still pays a higher yield than most fixed-income investments. It also generates more stable returns than many other blue chip stocks.
Why will Altria keep outperforming the S&P 500?
Over the past few years, the S&P 500’s growth was largely driven by big tech companies capitalizing on the rapid growth of the cloud infrastructure and AI markets.
However, many of those market leaders pulled back after the Federal Reserve raised its benchmark rates for the first time in three years this September. That sell-off intensified after the Democrats swept the midterm elections in early November, since many Democrats — including Texas governor-elect Gina Hinojosa — oppose the unchecked construction of new data centers.
As the S&P 500’s tech leaders lose their momentum, that cash will flow back to defensive stocks like Altria. Even though Altria has already outperformed the market by a wide margin, it still looks like a bargain at 13 times next year’s earnings. That low valuation — along with its high yield and wide moat — makes Altria one of the best stocks to buy in this messy market.
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Leo Sun has positions in Altria Group. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
