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Altria (NYSE: MO) and AT&T (NYSE: T) are two big names for many dividend investors, and it’s no mystery why. While both stocks are trailing the S&P 500 over the past five years, they offer two of the highest dividend yields in the index.
While Altria sports a 9.3% yield at recent prices and AT&T is a few steps behind at 6.7%, I think there are three reasons it takes a back seat to AT&T.
1. AT&T has big trends on its side
Smoking in the U.S. has been declining for a while now. In 2005, around 21% of U.S. adults smoked tobacco; in 2021, that had dropped to 11.5%. For Altria, the largest tobacco company in the country, volume growth has felt the effect. In the third quarter, it reported its U.S. shipment volume declined by 11.6%.
Luckily for Altria, its pricing power has offset the volume drop over the years. The addictive nature of nicotine means people don’t generally stop buying tobacco just because it went up in price. But at some point, the company will need a solution that isn’t just raising prices.
I think it’s hard to know when that will be with Altria consumers, but at some point, the company will need a viable income stream aside from its tobacco products. It’s made attempts to adjust to the market by selling its own e-cigarettes, but most of those products have been discontinued with little to no success to show for it.
While Altria is experiencing volume issues, AT&T’s customer growth is headed in the right direction. With the expansion of 5G coverage in the U.S. and the growth of fiber internet, AT&T has two core business segments that should experience good growth in the coming years. According to Ericsson — which just struck a five-year, $14 billion deal with AT&T — 5G will account for around 71.5% of the U.S. mobile market by 2029. Fiber is also only available to around 40% of Americans, so there’s plenty of room to go.
2. AT&T has made debt reduction a priority
When AT&T decided to pursue its media and entertainment (M&E) ambitions, it took on a lot of debt to make it happen. In retrospect, I think AT&T and its investors would…
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