I perceive two glaring issues with the renowned stock, Altria (NYSE: MO). Despite these concerns, I was marginally intrigued when the company divested some Anheuser-Busch InBev shares. However, my enthusiasm was promptly shattered when the management disclosed its plan for a multi-billion dollar share repurchase program.
Altria has once again underscored why it might not be the ideal stock for most investors. Let’s delve into the details.
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Decoding Altria’s Dilemma: High Yield, Dubious Choices
Altria’s saving grace lies in its dividend yield, an enticing 9.1%, with over 54 years of consistent increments. It’s understandable why dividend-seeking investors might be drawn to this staple. The recent stock buybacks could potentially shore up the firm’s dividend sustainability through reduced outstanding shares.
One might argue that buybacks are a wiser strategy than further investments, given Altria’s failed endeavors with Juul and cannabis. These missteps led to substantial write-offs. At least with buybacks, the outcome is predictable.
An Ill-Fated Pivot: The Missteps of Altria’s Expansion
Altria’s foray into vaping and marijuana backfired spectacularly, leading to major losses and signaling a dubious strategic direction. The underlying reason for these ventures lies in the steady decline of its primary cigarette business, a trend showing no signs of abatement.
In 2018, Altria produced 109.8 billion cigarettes, a decrease of 5.8% from 2017. By 2023, production had plummeted to 76.3 billion cigarettes, marking a harsh 30% five-year decline.
The firm is merely propped up by price hikes, an unsustainable practice that exacerbates volume erosion. Desperate measures include a re-entry into the vaping sector with the acquisition of NJOY.
The current scenario presents a dilemma: whether to persist in futile investments or let the business decay naturally. Neither option bodes well, hence my aversion to Altria stock.
The Unappealing Reality of Altria’s Decline
Consumer staples companies ought to exude stability and predictability, qualities sorely lacking in Altria’s narrative. Despite a robust dividend track record, the core business is in a downward spiral with no viable remedy in sight.
Opting for stock buybacks seems more like a band-aid than a cure for Altria’s fundamental challenges. This decision only adds to the litany of reasons to steer clear of this stock, despite its generous dividend yield.
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Author: Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool maintains no position in any of the stocks cited. For disclosure policies, please refer to The Motley Fool.
The views expressed are solely those of the author and do not reflect the opinions of Nasdaq, Inc.
