Buy Altria Stock? There Are 1.69 Billion Reasons to Worry.

Altria Group (NYSE: MO) is the largest cigarette maker in North America. It owns the region's leading brand in Marlboro. But neither of these facts have saved the company from the effect of people moving away from smoking cigarettes.

And yet Altria's earnings and dividend keep rising despite a clearly negative industry trend in cigarette volumes. Here's the problem, what Altria is doing about it, and why investors should be worried.

Image source: Getty Images.

What does Altria do?

While Altria has other business lines, making and selling cigarettes is the big one. In the first quarter of 2025, it produced 14.2 billion cigarettes. That was roughly 97% of the smokeable products it produced in the quarter.

Meanwhile, smokable products made up roughly 88% of the top line. Yes, the company makes other products, like nicotine pouches and vapes. But cigarettes are clearly the most important business here.

The next step in the problem with Altria is that cigarette volumes are falling. The 14.2 billion smokes it made in the first quarter of 2025 were down 13.7% from the nearly 16.5 billion it made in the same stanza of 2024.

That's not an unusual change, either. Go back to the first quarter of 2020 and it produced more than 25 billion cigarettes. This is a business that is facing very real headwinds.

Altria is doing what it can to blunt the impact

Even though there is a very clear downward trend in cigarette demand and production, smokers are still a pretty loyal bunch. The fact that nicotine is addictive obviously helps on that front, but the end result is that Altria has some pricing power. And that has long been a key tool in the effort to offset the impact of the volume declines.

But as the chart below shows, it seems a tipping point has been reached. Price increases are no longer enough to keep the top line growing.

Altria has made multiple missteps in its efforts to find a replacement for cigarettes, including blowing billions of dollars with failed investments in vape marker Juul and a marijuana company. And yet the company has managed to keep earnings and the dividend heading higher.

The key has been stock buybacks, with the company reducing its share count from 1.758 billion in the first quarter of 2024 to 1.69 billion in the same quarter of 2025.

MO Revenue (Annual) data by YCharts.

Rising earnings and dividends might be keeping investors happy for now, but it is just papering over the big top-line problem. Although revenue only fell 5.7% year over year in the first quarter of 2025, this business is clearly in decline. In the first quarter, the company generated revenue of roughly $5.3 billion, down from nearly $6.4 billion in 2020.

Nothing to see here, yet...

Reducing the share count is fine. And it is a reasonable way to return value to shareholders. But in Altria's case, it now looks like the only way it can increase its earnings given the deepening problems the company is facing with its most important product.

Sure, Altria has a large and attractive 6.7% dividend yield, and that dividend isn't likely to be cut in the near term. But management will eventually need to find a replacement for cigarettes or, well, it will have no choice but to admit that the company is in terminal decline. Conservative income investors should tread very carefully here.

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Reuben Gregg Brewer 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.