Altria Investment Case Updates

Altria: I will be cutting my position

13 August 2023

This is just to say that I will be selling Altria completely in the following weeks. I will sell faster if I find a better opportunity. The main flaw in my original thesis was that the company had strong pricing power as smokers are not sensitive to cigarette prices. Whether it is a switch to vaping or a general trend for a healthier lifestyle, Altria’s positions have not held up well. It struggles to pass on inflation to its customers without losing too much of a market share, while its vaping products are well behind competitors. After an epic failure with the $12.8bn acquisition of Juul and the decision to end the US partnership with Philip Morris on IQOS, Altria made a new $2.75bn acquisition of an e-vapour producer, NJOY. You would have thought that with Altria’s history, market share and financial resources, the company could have come up with a few leading products in new segments instead of trying to buy out the newcomers.

The stock pays about an 8% dividend yield, one of the highest in the S&P 500, but without organic growth, the total return will not be higher than that. In fact, if the company struggles to offset declining cigarette volumes with price hikes, the dividend would have to be cut.

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