When it comes to Altria (NYSE: MO), the big attraction for most investors is going to be its huge 8.9% dividend yield. But yields usually don’t get that high without a good reason, which is why most long-term dividend investors should probably consider Philip Morris International (NYSE: PM) instead, despite a lower yield. Here’s what you need to know to make the call.
The similarities and differences between Altria and Philip Morris International
In early 2008 Altria spun off Philip Morris International. In effect, Altria retained the rights to sell Philip Morris brands in the United States while Philip Morris International sold those same brands outside the United States. In this way, the two companies share the same iconic cigarette brand portfolio, which includes industry giant Marlboro.
According to Altria: “Altria’s Board of Directors and management believed that the spin-off would enable each of Altria’s international and domestic tobacco businesses to focus exclusively on realizing its own opportunities and addressing its own challenges, thereby building long-term shareholder value.”
The big-picture problem is the global shift away from cigarette smoking. Both are working to find new nicotine-based products to offset the decline in their core cigarette operations. However, with Altria focused on just one market, the risk involved is more binary. Philip Morris International benefits from the diversification of having different markets in its portfolio. Altria’s ultra-high dividend yield is, at least in part, a sign of this increased risk.
Altria has stumbled
That said, Altria was an early investor in vape maker Juul and marijuana company Cronos. At the time of investment both made logical sense, as they could help the company broaden beyond cigarettes. However, neither one turned out to be successful, with the pair leading to massive writedowns and one-time charges.
Altria is trying again with vapes, having recently acquired Njoy. While it is still early, Njoy was at a later stage of business development when acquired and the deal probably has a higher…
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