Why Altria's 7.5% Yield Looks Tempting (But There's a Catch)

Altria (MO) stock has tanked hard lately, pushing its dividend yield to 7.5%—seriously juicy for income hunters. But is that payout actually safe? Let’s check the numbers.

The good news: Dividend is well-covered. Through Q3, Altria generated $6B in operating cash flow while paying out $5.2B in dividends—that’s a 1.1x coverage ratio. The balance sheet is solid too, with debt-to-EBITDA at 2x. This is the stock’s 60th consecutive annual dividend increase, so management is serious about keeping the streak alive.

The problem: Core cigarette business is bleeding volume. Marlboro shipments dropped 11.7% last quarter, and overall volumes fell 8.2%. Consumers are trading down to discount brands due to inflation. Meanwhile, the e-vapor play (Njoy) is stuck in patent litigation with Juul, while illicit disposable vapes dominate 60% of the market. Even the hot On! nicotine pouches only grew 0.7%.

The verdict: From pure valuation, MO trades at ~10x forward P/E—cheap for a quality business. But this is a structurally declining company being propped up by price hikes. Younger smokers are defecting to alternatives, and lower-income consumers (Altria’s core) face pricing pressure. The dividend is safe for now, but don’t expect explosive growth. More of a hold-for-income play than a value trap bounce-back story.