Stability and a 7.3% Yield: Altria's Contrarian Appeal Amid Tariff Chaos

As markets burn, Big Tobacco barely smolders. Trader Tom Preston parses Altria's tariff-resistant business model.

It’s not often that news dominates the market, but President Trump’s announcement of tariffs hit stocks hard. Whatever long-term benefits the import duties might have, their short-term uncertainty has rattled already-shaky global economies. Yesterday’s rebound aside, the S&P 500 had fallen 12.4%, and the Dow Jones Industrial Average dropped 11.3%. But one stock, maybe unsurprisingly, had a much more muted response.

Altria (MO), the King of Tobacco, fell about 3.7% over that same time. Not a great performance but a much better showing than we saw in the broader market. And that sell-off just took it to the bottom of the range it’s been in for the past six weeks. Thank you, tobacco! 

But can Altria remain strong and weather the market storm? 

Call it a bad habit, a vice or an addiction, but tobacco has a hold on its users. Some smokers don’t want to or just can’t quit. And while cigarettes and other tobacco-adjacent products aren’t cheap, they’re not so expensive that people who might not be in the best financial shape can still find room in their budget for Altria’s’s products. Economic recessions might even boost demand among smokers looking to ease their stress.

Since the tobacco class action suits in the ’80s and ’90s, smoking rates have been reduced significantly. So, yes, smoking has been declining in the U.S. over the past five decades, but the recent drops have been fairly modest. What used to be full percentage point drops year-on-year are now sub-one percent drops. Addiction is just a part of human nature. And that (unfortunate?) reliability helps keep Altria’s finances strong. 

During the past five years, the company’s earnings have come in very close to Wall Street estimates, and per-share profits have been stable. That lack of surprises has made its stock price kind of sleepy, following the moves in the broader market but with much lower percentage changes. That’s what we’re seeing today. The next earnings announcement is coming late this month, and the market will be looking for a repeat. 

Looking forward, forecasts call for modest growth in profit, with expectations of a 4% increase in 2025 and 3% in 2026. Cigarette sales account for more than 85% of Altria’s revenue, and that doesn’t seem to be slowing down. Plus, its smokeless products—emphasized by its acquisition of NJOY, an electronic cigarette and vaping supplier—could keep the money flowing long-term. 

With regard to tariffs, after spinning off Philip Morris back in 2008, most of Altria’s revenue comes from the U.S. market. So, tariffs aren’t really an issue for the company. 

On the downside for the company, increased regulation of tobacco and tobacco-related products is always a possibility. But those rules are usually signaled well in advance, and with an anti-regulation administration in Washington, Altria might be able to avoid any serious challenges.

But one appeal the company has for investors is its dividend payment. Right now, it has an annual yield of about 7.3%. As long as it has enough revenue to maintain it, the dividend could remain stable and provide a decent return long-term. That said, buying the stock for the dividend exposes the investor to a drop in the stock price. So, there’s risk in the trade. But in addition to income, the dividend can be seen as reducing the stock position’s cost. The lower the cost basis of stock, the less risk there is in buying and owning it.

The positives point to long-term profits. Short-term, it’s anyone’s guess where the stock might go. There might be some increased price volatility around earnings and if the broader market continues to fall. But the dividend yield and gradual profit growth could keep upward pressure on the stock price and that could make Altria interesting for long-term investors. 

Tom Preston, tastylive chief market strategist, is responsible for the brokerage’s trading strategy, client-facing trading software and futures trading products. He contributes to Luckbox magazine and writes tastylive's Cherry Bomb newsletter. He's been trading options since 1992.  

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