Better High-Yield Dividend Stock: Altria or British American Tobacco?

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Altria and British American Tobacco have nearly identical dividend yields, growth, and valuations today.
Smoke-free nicotine is the industry's future. This is where differences begin to show.
It's too soon to panic, but one company is currently in a much better spot for the long term.
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Sin stocks, such as tobacco companies, aren't for everyone, but they make excellent dividend stocks due to their entrenched and resilient business models and huge profit margins, which allow them to send most of their profits to shareholders.
Altria Group (NYSE: MO) and British American Tobacco (NYSE: BTI) are industry leaders with many similarities, including outsized dividends that yield around 7% at their current share prices.
But which company would be a better fit in your portfolio? The tobacco industry is evolving, and one company is adapting better.
Here is what you need to know.
Altria and British American Tobacco sell many of the leading brands of cigarettes and other tobacco products. Altria operates primarily in the U.S., where it sells Marlboro cigarettes. British American Tobacco sells globally, where it competes mainly with Philip Morris International in non-U.S. markets.
Investors looking at the financials will quickly notice that these two stocks are strikingly similar. Altria and British American Tobacco have nearly identical dividend yields, anticipated long-term earnings growth, and trade at almost the same valuation.
Essentially, both companies are slow-growing, high-yield dividend stocks.
You can also count on both companies to continue paying and raising their dividends. Both companies generate enough free cash flow to cover their dividends, and they have multibillion-dollar stakes in other companies that they can liquidate to raise cash.
Altria owns a stake in Anheuser-Busch InBev, worth approximately $11 billion at the company's current price. British American Tobacco owns a roughly 25% stake in ITC Limited, an Indian conglomerate worth approximately $16 billion today.
Despite the slow demise of traditional cigarettes, tobacco companies have become excellent financial survivalists.
Modern society is aware of the health dangers of smoking, which is why cigarette use has been in decline for years.
Tobacco companies know this and have spent the past decade rushing to develop and launch smokeless nicotine products that aren't healthy by any means but don't produce the harmful smoke cigarettes do. The big three product categories are electronic cigarettes/vapes, oral nicotine pouches, and heat-not-burn tobacco devices.
The tobacco industry is becoming the nicotine industry, and market share is up for grabs as consumers transition from cigarettes to smokeless products. Both companies, directly or through joint ventures, have established offerings in all three smokeless categories.
British American Tobacco has thrived with its electronic vape brand, Vuse, with an estimated 40% market share in its core markets. Sales of new product categories represented 13.2% of total revenue in 2024.
Altria is much further behind. In 2018, the company invested $12.8 billion in a fast-growing electronic vape company, but the investment was a disaster that set the company back. Altria has worked on alternative plans since then, but sales of new product categories totaled just $300 million in 2024, only 1.2% of total revenue.
While both companies should continue to squeeze value out of their cigarette businesses, Altria's long-term growth is currently on shakier ground.
Philip Morris International is rolling out its leading heat-not-burn brand, IQOS, in the United States. IQOS offers a similar experience to cigarettes and has successfully converted smokers in other countries. If IQOS thrives and Marlboro's cigarette declines accelerate, it could further pressure Altria.
Meanwhile, the U.S. government has begun cracking down on illegal vape products that have flooded the market. It's a win for Altria and British American Tobacco, but the latter should benefit more since Vuse already enjoys a whopping 50% share of the U.S. vaping market.
Altria doesn't seem poised to enjoy the same market leadership with these next-generation nicotine products that it has for generations with Marlboro cigarettes. Unless that changes, Altria's business may grow weaker over time as cigarette volumes erode.
Change is happening slowly, so Altria can still be an excellent short-term dividend stock. However, British American Tobacco is the superior high-yield stock to buy and hold.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco P.l.c. and Philip Morris International and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.
Better High-Yield Dividend Stock: Altria or British American Tobacco? was originally published by The Motley Fool