When it comes to Altria (NYSE:MO), the main draw for most investors will be its huge 8.9% dividend yield. But yields don’t typically reach such high levels without good reason, which is why most long-term dividend investors should probably consider Philip Morris International (NYSE:PM) instead, despite lower yield. Here’s what you need to know to make the call.
Similarities and differences between Altria and Philip Morris International
In early 2008, Altria created Philip Morris International. Indeed, Altria retained the rights to sell Philip Morris brands in the United States while Philip Morris International sold these same brands outside the United States. The two companies therefore share the same emblematic brand. cigarette brand portfolio, which includes industry giant Marlboro.
According to Altria: “Altria’s board of directors and management believed that the spin-off would allow each of Altria’s international and domestic tobacco businesses to focus exclusively on realizing its own opportunities and addressing its own challenges, thereby creating long-term shareholder value. »
The major problem is the global abandonment of cigarettes. Both are scrambling to find new nicotine products to offset the decline in their core cigarette businesses. However, as Altria focuses on a single market, the risk involved is more binary. Philip Morris International benefits from the diversification linked to the presence of different markets in its portfolio. Altria’s extremely high dividend yield is, at least in part, a sign of this increased risk.
Altria stumbled
That said, Altria was an early investor in vape maker Juul and marijuana business Kronos. At the time of the investment, both made sense because they could help the company expand beyond cigarettes. However, neither was successful, with the pair resulting in massive writedowns and one-off charges.
Altria is trying again with vapes, having recently acquired Njoy. Although it is still early, Njoy was at an advanced stage of commercial development at the time of its acquisition and the transaction probably has a better chance of succeeding. But it’s hard to ignore Altria’s poor track record when it comes to big business.
This includes the spin-off of Philip Morris International. Although the two do not compete in cigarettes, Philip Morris International is increasingly a competitor in non-cigarette products in the United States. So Altria essentially created a competitor by spinning off Philip Morris International. Altria’s series of poor strategic decisions is another reason why the stock’s dividend yield is so high.
Philip Morris International succeeds where Altria failed
In an industry going through a major transition, Philip Morris International has simply done better. In the company’s 2023 annual report, it took stock of its success: “In 2023, our smoke-free portfolio represented 36.5% of total net revenue, with 25 markets generating more…
