Altria (NYSE:MO) And British-American tobacco (NYSE:BTI) are two of the largest cigarette companies in the world. Both offer huge dividend yields, with Altria at 9.3% and British American Tobacco at 9.8%. That’s actually the main reason most investors will be interested in either of these two companies. But which of these high-yield stocks is the better option?
Warning: You may want to avoid both
Before we get into the question of whether Altria or British American Tobacco is the better company, it’s important to look at another topic. Do you even want to own a cigarette company? Yes, the huge dividend yields are attractive, but the companies that support those yields are facing long-term decline.
In 2018, Altria produced 109.8 billion cigarettes. By 2023, that number had fallen to 76.3 billion. A simple calculation shows that it is a decline of around 30%, which is clearly not a positive trend. The story is no different at British American Tobacco. In 2018, the company produced around 700 billion cigarettes. In 2023 it was just 555 billion. That’s a decrease of about 21%.
When you buy one of these companies, you are investing in a company that is facing fundamental problems. Yes, both companies were able to increase cigarette prices to offset the impact of the decline in volume. But this can only continue for so long before a tipping point is reached and price increases actually worsen the volume decline. Conservative income investors should probably avoid both high-yield stocks.
British American Tobacco has more positive news than Altria
If this warning isn’t enough to steer you away from these cigarette manufacturers, the next question you need to ask yourself is: which one is better? The answer today appears to be British American Tobacco. There are two main reasons for this.
First, after the separation from Altria, Altria’s business is limited to the US market Philip Morris International (NYSE:PM), which controls Philip Morris’ trademarks outside the United States. The United States is working very hard to discourage consumers from smoking, and the industry has long been in a downward trend. Since this is essentially the only market in which Altria operates, the company is at a strategic disadvantage compared to British American Tobacco, which sells cigarettes in several markets worldwide.
Although smoking is on a broad downward trend worldwide, every market is different. For example, British American Tobacco’s organic sales growth in 2023 was 0.6%. This gain was a mix of a weak US performance of minus 6.4% but a 6.8% gain in the rest of the world. While this is not an indication of continued volume decline, it does illustrate the additional flexibility that British American Tobacco has due to its global portfolio.
Second, Altria has made too many strategic missteps. The first was the separation of the US business and the foreign business. In fact, Philip Morris International has essentially become a competitor since it entered the U.S. market with non-cigarette products. But that split was also followed by failed investments in vape brand Juul and a marijuana company, both of which led to massive writedowns. And now Altria is trying vaping again with its recent purchase of NJOY. This vape company is further along in its development, so the result may be better this time, but the list of mistakes here is still disturbingly long.
By comparison, British American Tobacco was able to announce that its non-cigarette operations, which it calls new categories, reached profitability in 2023. It is noteworthy that profitability was achieved two years earlier than the company’s internal goals. In other words, British American Tobacco appears to be doing better than Altria when it comes to going beyond cigarettes.
The better of two struggling companies
Both Altria and British American Tobacco face enormous headwinds in their most important businesses. Most investors will probably want to stay away here despite the huge dividend yields. But if you’re willing to make a risky investment, British American Tobacco appears to have both a fundamental advantage (a global reach) and is currently performing better (relatively impressive success in non-cigarette investments). If you had to choose between these two tobacco giants, British American Tobacco would currently be the better choice.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco Plc and Philip Morris International and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.
Best Stock to Buy Right Now: Altria vs. British American Tobacco was originally published by The Motley Fool