It's generally not a bad idea to allocate some portion of your portfolio to dividend stocks. Dividends are a great source of passive income and can help mitigate volatility in your portfolio that you might experience from growth stocks.
One of the safest dividend stocks is tobacco company Altria (NYSE: MO) . It's a member of an exclusive club called the Dividend Kings: companies that have grown their dividend payment annually for at least 50 consecutive years.
Let's dig into Altria's business and assess why now looks like a great opportunity for dividend investors to scoop up some shares.
Weathering the storm
As it stands, the majority of Altria's revenue stems from the sale of cigarettes, but the industry in general has been experiencing a decline for some time.
Health and wellness imperatives have seen a sharp uptick in recent years, while some consumers who still smoke are buying fewer cigarettes as lingering inflation and a tough economy have taken a toll on purchasing power .
But Altria is seeing growth in areas other than smokable tobacco, and I think this could be the start of a new chapter for the company.
The company made a big splash in the vaping market through its acquisition of NJOY last June, and it sells a number of oral tobacco products including Copenhagen and Skoal.
The first-quarter earnings report shows that Altria now sells NJOY products in 82,000 stores, a 134% increase since its initial distribution of vapes began in the second quarter of 2023.
The oral tobacco market is also witnessing some newfound growth. According to the earnings presentation, shipment volume among these products rose 9.5% industrywide for the quarter ended March 31.
Among leading brands in oral tobacco, Altria's on! generated a 32.1% increase in shipment volumes year over year, suggesting consumers are transitioning away from smokable products and substituting them with vaping or oral tobacco.
Image source: Getty Images.
A steadfast commitment to shareholder value
The charts below illustrate an important point for investors. While Altria's revenue has experienced some pretty dramatic ebbs and flows, one thing has consistently trended upward: the company's dividend.
MO revenue (quarterly) data by YCharts.
This shows me that even during challenging times operationally, Altria continues to put shareholder value first and remains committed to paying and raising its dividend.
Another reason I like Altria right now is that the company continues to buy back its stock . The first-quarter report said that the board of directors approved an extra $2.4 billion of share repurchases on top of the existing $1 billion buyback plan.
I suspect that management sees its stock as undervalued, since it currently trades at a price-to-earnings (P/E) ratio of just 10.4, roughly half the company's 10-year average P/E.
A great option for long-term investors
The chart below benchmarks the total return of Altria stock versus the S&P 500 over the last 20 years.
MO total return price data by YCharts.
It has clearly beaten the S&P 500 , and the trends above really underline the importance of reinvesting dividends as it relates to long-term compound growth.
Given the stock's historically cheap valuation combined with encouraging prospects in new markets outside of the legacy cigarette business, I think right now is a terrific opportunity for investors to buy some shares of Altria stock at an 8% dividend yield to hold for the long run.
Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
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