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Altria: A company with a significant competitive advantage and a high dividend yield.

  • Glenn
  • Jul 25, 2021
  • 18 min read

Updated: Jun 15


Altria is one of the most dominant players in the U.S. nicotine market, anchored by its iconic Marlboro brand and a long-standing focus on shareholder returns. The company combines a highly profitable core cigarette business with growing investments in smoke-free alternatives like nicotine pouches and e-vapor products. While Altria faces challenges from regulatory pressure, changing consumer preferences, and illicit market competition, it also benefits from strong pricing power, brand loyalty, and a capital-light model that generates consistent cash flow. The question is: Can this tobacco giant continue to deliver in a changing industry - and does it deserve a place in your portfolio?


This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 


For full disclosure, I should mention that I do not own any shares in Altria at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Altria, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.



The Business


Altria Group is the leading tobacco company in the United States, known for owning Philip Morris USA, the maker of Marlboro, which has been the top-selling cigarette brand in the country for over 50 years. The company’s operations span smokeable products like cigarettes and cigars, oral tobacco including smokeless products such as Copenhagen, Skoal, and nicotine pouches sold under the on brand, and more recently, e-vapor through its 2023 acquisition of NJOY. While Altria also holds equity stakes in Anheuser-Busch InBev and Cronos Group, its core business remains centered on nicotine products in the U.S. market. Most of Altria’s revenue comes from its smokeable segment, particularly Marlboro, which continues to demonstrate strong pricing power despite long-term declines in cigarette volumes. The company is also investing in reduced-risk products including oral nicotine and e-vapor, and is pursuing future opportunities in heated tobacco through a joint venture with Japan Tobacco. These efforts are part of its broader strategy to lead adult smokers toward potentially less harmful alternatives while continuing to generate strong cash flows. Altria enjoys two durable competitive moats. First, it benefits from a brand moat. Its portfolio includes some of the most recognized and trusted tobacco brands in the U.S., and consumer loyalty in this category is high, making it difficult for newcomers to gain traction. Second, Altria benefits from a regulatory moat. Advertising restrictions on tobacco products in the U.S. effectively block new entrants from reaching consumers, reinforcing the position of established players like Altria. These advantages help Altria run a very profitable business that brings in steady cash. The company uses this cash to pay generous dividends and buy back its own shares, which makes it attractive to income-focused investors. At the same time, Altria is using its strong position to slowly shift toward products that don’t involve smoking.

Management


Billy Gifford serves as the CEO of Altria Group, a role he assumed in 2020 after more than 25 years with the company. He brings deep institutional knowledge and a broad understanding of the tobacco industry, having held key leadership positions across finance, marketing, strategy, and consumer research. Prior to becoming CEO, he served as Vice Chairman and CFO, overseeing major strategic initiatives and capital allocation decisions. Earlier in his career, he held various roles within Altria’s subsidiaries, contributing to long-term planning, business development, and consumer insights. Before joining Altria (then Philip Morris USA), Billy Gifford began his career at the public accounting firm Coopers & Lybrand, which is now part of PwC. His financial background and cross-functional leadership experience have shaped a disciplined and shareholder-focused management style. One notable move under his leadership was the sale of Ste. Michelle Wine Estates in 2021 for $1,2 billion. With this transaction, Altria exited the wine business to concentrate more fully on its core mission: leading adult smokers toward a non-combustible future. At the time, Billy Gifford stated, “We believe the transaction is an important step in Altria’s value creation for shareholders and allows our management team to focus more on the responsible transition of adult smokers to a non-combustible future.” This strategic clarity and commitment to transformation resonated strongly with me, both in terms of capital discipline and long-term vision. Billy Gifford has a 74 out of 100 employee approval rating on Comparably, placing him in the top 20 percent of CEOs at similarly sized companies. While not a highly public figure, I see his long tenure, broad experience, and disciplined leadership as strengths. I’m confident in his ability to continue leading Altria in a responsible and shareholder-focused way.


The Numbers


The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Altria has historically achieved a very high ROIC for several reasons. The cigarette business is extremely capital-light. Unlike manufacturing-intensive industries, Altria does not need to spend heavily on physical infrastructure or R&D. Once the production lines and distribution networks are in place, maintaining them is relatively inexpensive. This allows the company to generate high profits with relatively little capital investment. Altria has also consistently raised prices on its products, especially Marlboro, faster than inflation. Even though cigarette volumes are declining, strong brand loyalty and the addictive nature of nicotine help the company offset those declines through higher prices, which supports margins and returns. On top of that, strict regulations on advertising and new product approvals make it very difficult for new competitors to enter the market. This protects Altria’s position and means it does not have to spend heavily to defend market share, which helps preserve capital and maintain high returns. Cigarettes and oral tobacco products also come with high margins. Once production and distribution costs are covered, most of the remaining revenue is profit, which further boosts returns on capital. In 2019, Altria’s return on capital turned negative due to a massive write-down of its $12.8 billion investment in Juul. By the end of the year, it had written off $8.6 billion as Juul faced lawsuits, regulatory pressure, and a drop in market share. In 2021, ROIC was still low because Altria continued to take losses on earlier investments in both Juul and Cronos. These losses reduced profits, while the investments still showed up on the balance sheet, making returns appear weaker than they were in the core business. These years were outliers, and I expect that Altria will continue to achieve a high ROIC moving forward due to the sector it operates in.



The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Altria’s equity went down every year from 2018 to 2022 mainly because of big losses on some of its investments. The biggest one was Juul. Altria spent $12,8 billion on Juul in 2018, but the value of that investment quickly dropped due to lawsuits, government pressure, and falling sales. Altria had to write down most of that amount, which reduced its reported profits and lowered equity. There were also losses on its investment in Cronos, a cannabis company that didn’t live up to expectations. In addition, the value of Altria’s stake in Anheuser-Busch InBev went up and down with the market. When the value dropped, it reduced equity. Altria’s equity started to grow again in 2023 and 2024 for a few reasons. First, the company exited its investment in Juul in 2023, which meant no more losses from that deal going forward. That helped stop the steady hits to equity from past write-downs. Second, with those losses behind it, Altria’s strong tobacco business was able to lift profits and rebuild retained earnings, which directly adds to equity. Finally, in 2024, Altria sold part of its stake in Anheuser-Busch at a profit. That helped strengthen the balance sheet and further supported the increase in equity.



Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins offer a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. It is not surprising to see that Altria has consistently generated positive free cash flow in each year over the past decade. The company has also maintained a high levered free cash flow margin, thanks to several key factors. Altria operates in a capital-light industry. Once its manufacturing and distribution systems are in place, they require very little ongoing investment. Capital expenditures are typically less than 5% of revenue, which means most of the cash generated from operations is available as free cash flow. Tobacco products like cigarettes and smokeless tobacco also have very high margins. The cost of producing a pack is relatively low, while strong pricing power allows Altria to turn a large share of revenue into cash. And even though cigarette volumes are declining, demand remains stable and predictable, especially among loyal consumers. This supports consistent cash generation year after year. Altria’s free cash flow and levered free cash flow margin dipped slightly in 2024, mainly for a few reasons. First, the company recorded a non-cash impairment on the Skoal brand, which lowered reported cash flow but did not affect the core business. Second, Altria increased spending in newer areas such as NJOY and heated tobacco, which supports long-term growth but temporarily reduced free cash flow. Still, free cash flow and the levered margin reached their second-highest levels ever. Altria uses its free cash flow to reward shareholders through dividends and share repurchases. It has increased its dividend 59 times in the last 55 years and completed its largest single-year buyback in over two decades in 2024. Given this strong cash generation, investors should continue to benefit moving forward. The free cash flow yield also suggests that the shares are trading at an attractive valuation. However, we will revisit valuation later in the analysis.



Debt


Another important aspect to consider is the level of debt. It is crucial to determine whether a business has manageable debt that can be repaid within a period of three years. We assess this by dividing total long-term debt by current earnings. Based on Altria's financials, the company currently has 2,1 years of earnings in debt, which is comfortably below the three-year threshold. Altria has reduced its long-term debt every year since 2020, and as earnings continue to grow, I expect the debt-to-earnings ratio to decline further in the years ahead.


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Risks


Regulations is a risk for Altria. Altria operates in one of the most heavily regulated industries in the United States. The company is subject to a wide range of federal, state, and local rules that govern everything from how its products are manufactured and marketed to how they are taxed and distributed. A key regulatory body is the U.S. Food and Drug Administration (FDA), which has broad authority under the Family Smoking Prevention and Tobacco Control Act. This law allows the FDA to regulate nearly every aspect of tobacco products, including their nicotine levels, flavors, packaging, and advertising. One of the most serious regulatory risks comes from the FDA’s renewed proposal to cap the amount of nicotine in cigarettes to non-addictive levels. If implemented, such a rule could significantly reduce demand for traditional cigarettes by making them less satisfying to smokers. Although any change would likely face legal challenges and take years to enforce, it poses a long-term threat to Altria’s core business. Altria is also exposed to regulatory uncertainty around newer, smoke-free products. The company cannot market or sell new products like oral nicotine pouches or e-vapor devices without FDA authorization. The approval process is often slow and unpredictable, which puts Altria at a competitive disadvantage if rival products are reviewed or approved more quickly. There is also the risk that products currently on the market, such as on nicotine pouches or NJOY’s e-vapor devices, could be pulled if the FDA later decides they are not appropriate for public health. In addition, higher taxes on tobacco products remain a constant risk. Significant tax increases at the federal, state, or local level could reduce consumption, encourage a shift to cheaper alternatives, and hurt Altria’s market share and margins.


Changing consumer preferences is a risk for Altria. Altria’s core business depends on the continued use of nicotine products, particularly cigarettes. While the company has long dealt with declining cigarette volumes - an industry trend that continued in 2024 with an estimated 9 percent drop in adjusted domestic volumes - the bigger risk lies in the broader shift in consumer attitudes, especially among younger generations. The decline in smoking is no longer just about smokers quitting. It's also about new adults choosing not to start at all, even when it comes to non-combustible nicotine products like e-vapor and oral pouches. Today’s younger consumers tend to be more health-conscious, better informed about the risks of nicotine, and less socially accepting of its use. Unlike in previous decades, nicotine, whether smoked, vaped, or consumed orally, holds less cultural appeal among Gen Z and younger millennials. This is not just a challenge for cigarettes but also for the growth potential of smoke-free alternatives that Altria is betting on, such as on nicotine pouches and NJOY vapor products. These preferences are reinforced by public health campaigns, school-based education, and social media messaging, all of which work against normalizing nicotine use. Even if Altria successfully transitions part of its business to reduced-risk products, the total addressable market may shrink over time simply because fewer adults are interested in nicotine at all. This could limit future growth opportunities, even in categories that are currently expanding. Furthermore, changes in consumer preferences can impact brand loyalty and pricing power. If traditional products like Marlboro become less relevant or attractive to new generations, Altria’s ability to command premium pricing may erode, which would put pressure on margins.


Illicit products are a risk for Altria. The company faces growing competition from unauthorized e-vapor products, especially flavored disposable devices that have entered the market without going through the FDA’s approval process. These illicit products now account for more than 60 percent of the entire U.S. e-vapor market, a sharp increase from just a few years ago. This creates several challenges for Altria. First, it limits the commercial potential of NJOY, the e-vapor business Altria acquired in 2023. NJOY follows all regulatory rules and can only sell FDA-authorized products. In contrast, many illicit products offer a wider variety of flavors, which consumers prefer. Without access to these options, NJOY struggles to compete and attract users, especially younger adults who are new to nicotine. Second, the rise of illicit e-vapor makes it harder for Altria to reach its 2028 goals for smoke-free products. When the company set those goals, the illicit market was small. Today, the situation has changed. The popularity of flavored, illegal vapes is pulling consumers away from legal, reduced-risk alternatives. This undermines Altria’s effort to lead the transition away from cigarettes. Third, there is a growing imbalance in pricing and consumer perception. Illicit products often sell at lower prices because they avoid regulatory and tax costs. At the same time, responsible manufacturers like Altria must meet strict standards and face delays when bringing new products to market. This puts them at a disadvantage in both price and product appeal. Finally, the lack of consistent enforcement allows this dynamic to continue. Many sellers of illegal products face no real consequences, making it harder for law-abiding companies to compete fairly.


Reasons to invest


Altria’s core tobacco portfolio is a reason to invest. Despite the long-term decline in the number of U.S. smokers, the company’s cigarette business remains a powerful cash generator. Altria has a dominant position in the U.S. tobacco market, led by Marlboro, which continues to be the leading premium cigarette brand with strong brand loyalty and pricing power. Even in a tough market, Altria's cigarette business managed to grow its profits and improve its margins by raising prices significantly. This shows the strength of its business model, declining volumes are more than offset by higher prices and strong margins. Altria benefits from what is often called a regulatory moat. Strict advertising and marketing restrictions in the U.S. make it nearly impossible for new tobacco brands to enter the market or gain visibility. This protects incumbents like Altria, as it reinforces the dominance of well-established brands such as Marlboro and Black & Mild. The combination of pricing power, brand loyalty, and limited competition creates a durable advantage that allows Altria to maintain high profitability. Marlboro remains a key part of this strength. Its share of the highly profitable premium segment continues to grow, supported by its long-standing image as the aspirational brand among adult smokers. Altria continues to apply proven tools to maintain that positioning. In the discount category, the company uses other brands and carefully tested pricing strategies to retain price-sensitive smokers without hurting overall profitability. All of this contributes to a highly efficient and cash-generative business. Altria uses that cash to reward shareholders through regular dividend increases and buybacks.


Altria’s smoke free portfolio is a reason to invest. While the company’s core tobacco business remains a cash generative foundation, the future of nicotine consumption is shifting toward noncombustible products, and Altria is actively positioning itself to lead that transition. Its growing portfolio of smoke free alternatives includes nicotine pouches, e-vapor devices, and developing heated tobacco products, all supported by strong brands, targeted investments, and a clear long term strategy. A standout performer is on, Altria’s nicotine pouch brand. It has captured a meaningful share of both the US oral tobacco market and the growing nicotine pouch segment. The brand continues to gain traction with a rising number of regular users and strong consumer loyalty. What makes this even more impressive is that on reached profitability ahead of schedule, showing that Altria’s investments are starting to pay off. With its expanding presence and appeal, on gives Altria a strong position in one of the fastest growing areas of the nicotine market. Altria also made a strategic move by acquiring NJOY in 2023, giving the company full control over a portfolio of FDA authorized e-vapor products. In 2024, NJOY expanded distribution to over 100.000 stores, launched new marketing campaigns, and grew both its volume and market share in a competitive space. Beyond pouches and vaping, Altria is preparing to enter the US heated tobacco market through its Horizon joint venture with Japan Tobacco. The broader consumer shift toward smoke free alternatives is also accelerating. As of 2024, approximately 28 million US adults use e-vapor or oral tobacco products, nearly matching the number of adult cigarette smokers. Smoke free products now make up about 45% of the total nicotine market, and Altria’s presence in these growing categories puts it in a strong position to serve the evolving preferences of consumers.


Stopping or reducing illicit products is a reason to invest in Altria. The rapid growth of illegal, flavored disposable e-vapor products has become a major challenge for the company, especially following its acquisition of NJOY. These illicit products have flooded the market without undergoing FDA review, giving them an unfair advantage over legal products that must comply with strict regulatory standards. As a result, NJOY and other FDA-authorized brands are struggling to compete, even as demand for smoke-free alternatives continues to grow. If enforcement improves, and illicit products are removed or significantly reduced, Altria stands to benefit in several ways. First, NJOY would be able to compete on a more level playing field, gaining back market share currently lost to illegal competitors. This would increase the likelihood that Altria can meet or exceed the financial targets it set when acquiring NJOY and help the company make meaningful progress toward its long-term smoke-free goals. Second, a crackdown on illicit products would help restore trust in the legal marketplace. Consumers would be more confident in the safety and legitimacy of what they’re buying, and retailers would be less inclined to stock unauthorized products. This would allow Altria’s smoke-free brands like NJOY and on to grow more sustainably and gain long-term traction with adult users seeking reduced-risk alternatives. There are signs of progress. Several state attorneys general have started legal actions and investigations aimed at cracking down on illicit manufacturers and importers. More states are also pursuing legislation that would support enforcement through state-level product directories. Altria continues to advocate for faster FDA authorizations and stronger enforcement, and it remains engaged with lawmakers and federal agencies to help shape a more orderly marketplace.


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Valuation


Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.


The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 6,54, which is from the year 2024. I have selected a projected future EPS growth rate of 3%. Finbox expects EPS to grow by 1,9% in the next five years, but management believes it will reach mid-single digits, so I'm more optimistic. Additionally, I have selected a projected future P/E ratio of 6, which is double the growth rate. This decision is based on Altria's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $13,04. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Altria at a price of $6,52 (or lower, obviously) if we use the Margin of Safety price.


The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 8.753, and capital expenditures were 142. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 99 in our calculations. The tax provision was 2.394. We have 1.695 outstanding shares. Hence, the calculation will be as follows: (8.753 – 99 + 2.394) / 1.695 x 10 = $65,18 in Ten Cap price.


The final calculation is referred to as the Payback Time price. It is a calculation based on the free cash flow per share. With Altria's free cash flow per share at $5,08 and a growth rate of 3%, if you want to recoup your investment in 8 years, the Payback Time price is $46,53.


Conclusion


I believe Altria is an intriguing company with capable management. It benefits from a strong moat through its portfolio of the most recognized and trusted tobacco brands in the U.S., as well as from a regulatory moat that limits competition. The company has consistently achieved a high ROIC, which is expected to continue given the economics of the tobacco industry. This also explains why Altria has historically delivered a high levered free cash flow margin. Regulations are a risk for Altria because it operates in a highly controlled industry where the FDA has broad authority over nicotine levels, product approvals, and marketing. Proposed rules like reducing nicotine in cigarettes or delays in approving smoke-free alternatives could significantly affect sales. Changing consumer preferences are another risk. Younger generations are increasingly health-conscious and less interested in nicotine in any form, including smoke-free products. This shift could shrink the long-term market for both cigarettes and alternatives like pouches and e-vapor. Illicit products also pose a risk. Unauthorized e-vapor devices, especially flavored disposables, now dominate the market, making it difficult for NJOY to compete despite following all FDA regulations. These illegal products draw consumers away from Altria’s smoke-free offerings and create pricing and enforcement imbalances that undermine its long-term strategy. Altria’s core tobacco portfolio is a reason to invest because it remains highly profitable and cash-generative. Strong brands like Marlboro, combined with pricing power and limited competition, help offset declining volumes. The company uses this steady cash flow to support dividends and buybacks. Altria’s smoke-free portfolio is also a reason to invest, as it positions the company for long-term growth in a market that is moving away from cigarettes. With successful products like on nicotine pouches, the acquisition of NJOY’s FDA-authorized e-vapor platform, and plans to enter the heated tobacco segment, Altria is building a presence in the fastest-growing areas of the nicotine market. Stopping or reducing illicit products is another reason to invest. It would level the playing field for FDA-compliant brands like NJOY, improving their competitiveness and growth potential. Stronger enforcement would also support Altria’s long-term goals by restoring order to the market and increasing consumer trust in legal alternatives. While there are things to like about Altria, I believe there are better opportunities in the market. Therefore, I will not be investing in Altria at this time. However, if you are a dividend-focused investor, it could be an interesting income-generating investment below the Ten Cap price of 65 dollars.


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