The great battle of tobacco dividends. PM, MO or BTI?

High dividend, reliable business area and good financial situation. These are all qualities that the three big tobacco companies can boast of. But are any of them better than the others?

Philip Morris $PM+2.2%, Altria $MO-0.6% and British American Tobacco $BTI-0.5% are all major players in the tobacco industry. In fact, Philip Morris and Altria used to be one company until they split into two independent companies in 2008.

Altria and Philip Morris first separated in 2008 under pressure from Altria's investors who demanded higher dividends and share buybacks. Altria focused on the US domestic market, while Philip Morris focused on international markets.
Cigarette sales began to decline in the US but grew in international markets. After 2012, however, sales began to decline internationally. Both companies switched to new products such as e-cigarettes and tobacco warming devices to accommodate changing customer tastes.
Philip Morris invested in iQOS, which now has millions of users. Altria can now sell iQOS in the US. Altria has invested $12.8 billion in Juul, the largest electronic cigarette manufacturer in the US with an 18% market share.

All three companies focus on the manufacture and sale of cigarettes and other tobacco products. They also have major brands such as Marlboro, Camel and Lucky Strike.

However, these companies face significant challenges such as regulation and restrictions on tobacco advertising, as well as growing awareness of the health risks associated with smoking.

As a result, companies are looking to diversify their portfolio and expand their business into other areas such as e-cigarettes and other alternatives to traditional cigarettes.

Altria $MO-0.6%

Altria is one of the largest tobacco companies in the world, headquartered in Richmond, Virginia. It manufactures and sells cigarettes, tobacco products, and electronic cigarettes under the Marlboro, Black & Mild, Virginia Slims, and MarkTen brands. Its best-known brand is Marlboro, which is one of the world's best-selling cigarettes. The company currently sells its products primarily in the US market, although it has recently begun to pursue international expansion through the aforementioned new alternative tobacco products.

MO

Altria

MO
$49.12 -$0.28 -0.57%

Capital Structure

Market Cap
84.85B
Enterpr. Val.
106.28B
Revenue
21.46B
Shares Out.
1.72B
Debt/Capital
1.24
FCF Yield
10.61%

Valuation / Dividends

P/E
10.33
EPS
4.78
P/S
3.95
P/B
-16.98
Div. Yield
7.94%
Div. Payout
80.61%

Capital Eff. / Margins

ROIC
43.32%
ROE
-213.29%
ROA
23.23%
Gross
66.14%
Operating
57.63%
Net Profit
39.48%
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9

In response to declining sales of traditional cigarettes in many markets, the company has begun to diversify its portfolio. In 2018, it invested $12.8 billion for a 35% stake in Juul, the leading e-cigarette company in the US. It also acquired a license to sell iQOS branded electronic cigarettes from Philip Morris in the US market. Altria has also invested in cannabidiol and cannabis companies to gain access to alternative products.

Despite these product diversification efforts, traditional cigarettes still account for around 80 % of the company's revenue. Altria continues to face a low market capitalisation and relatively low profit margins given its position among the world's tobacco companies.

Altria has a strong portfolio of assets and relatively diversified products. It uses its cash flows to generate more than 8% dividend yield. Some diversification will be aided by the company's goal of achieving 35% volume growth in smokeless cigarettes, which will increase volume to about 1.1 billion units.

Altria's dividend is increasing nicely and regularly. Source

Phillip Morris $PM+2.2%

Philip Morris is one of the largest tobacco companies in the world. Headquartered in New York, it sells cigarettes and other tobacco products in more than 180 countries, with a primary focus on international markets outside the U.S.

PM
$109.56 $2.34 +2.18%

Capital Structure

Market Cap
166.68B
Enterpr. Val.
212.75B
Revenue
35.95B
Shares Out.
1.55B
Debt/Capital
1.26
FCF Yield
5.37%

Valuation / Dividends

P/E
20.94
EPS
5.12
P/S
4.63
P/B
-16.13
Div. Yield
4.86%
Div. Payout
100.60%

Capital Eff. / Margins

ROIC
22.44%
ROE
-78.35%
ROA
12.20%
Gross
63.69%
Operating
32.71%
Net Profit
22.16%
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As a tool to counter the decline in sales of traditional cigarettes, PM has begun to introduce its technological alternatives in the form of the iQOS tobacco warming device. The device heats tobacco sticks to create an aerosol containing nicotine without burning the tobacco. The iQOS device is now available in nearly 50 countries and has tens of millions of users.

Cigarette sales are down, but the positive is that despite this, the revenue of these companies remains unchanged.

Despite efforts to diversify products, the bulk of PM's revenue still comes from sales of traditional cigarettes. Cigarette sales are declining in most regions of the world and the company is facing pressure from regulators and the public due to the impact of smoking on public health.

Investors are demanding greater efforts from PM to accelerate the transition to its alternative products on a larger scale. However, this requires greater investment and regulatory approval in individual countries. If iQOS and other alternatives are successful, this could boost PM's growth in the future and mitigate the impact of declining traditional cigarette sales.

British American Tobacco $BTI-0.5%

British American Tobacco is a UK-based global company that is one of the largest cigarette manufacturers in the world. BTI sells cigarettes and other tobacco products in more than 200 countries around the world under dozens of its own global cigarette brands, including Dunhill, Kent, Lucky Strike and Pall Mall.

Capital Structure

Market Cap
74.18B
Enterpr. Val.
94.70B
Revenue
40.92B
Shares Out.
2.21B
Debt/Capital
0.43
FCF Yield
17.89%

Valuation / Dividends

P/E
-3.99
EPS
-8.41
P/S
1.40
P/B
1.10
Div. Yield
11.15%
Div. Payout
-23.66%

Capital Eff. / Margins

ROIC
20.27%
ROE
-34.63%
ROA
-18.21%
Gross
74.00%
Operating
46.01%
Net Profit
-52.82%
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Like other tobacco companies, BTI is facing declining demand for traditional cigarettes in Western countries but growing demand in emerging markets. To reduce dependence on cigarettes, it is again, like its competitors, strategically buying and investing in new areas and alternative products.

BTI has invested in a number of start-ups focused on alternative products, such as e-cigarette maker Vype and cannabidiol company Organigram. it has also developed its own tobacco heating equipment under the brand name Glo.

Despite efforts to diversify, traditional cigarettes remain a major source of revenue. Analysts estimate that alternative products will account for only about 15% of revenue by 2025. BTI thus faces the challenge of accelerating the growth of new products and establishing itself in a competitive environment.

Conclusion

Simple? All three are good and probably won't be a miss.

BTI seems to be a better choice for ultra-revenue due to much better geographic diversification. BTI also owns stakes in 13 cannabis startups. Thus more potential drive going forward. If you want to profit from cannabis, BTI is the best choice.

PM is a high-yielding tobacco dividend king that was the first to work on the future transition to a smoke-free environment. IQOS margins are slightly higher than cigarette margins, which bodes well. PM will soon operate globally and will likely dominate the US market for these products.

And let's not forget that growth prospects change over time. Long-term income investors should therefore consider which of these high-yield aristocrats are most at risk of a downside to their growth plans.

MO is America's king of traditional cigarettes... until the FDA regulates nicotine levels (likely in 2027 or 2028).

So, if we want to invest for the future, Altria seems to be more poorly positioned than the rest of the competition at the moment.

What about you, do you own any of the tobacco giants? And who is your favourite?

Disclaimer: This is by no means an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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At current prices, it's clearly $BTI-0.5% for me.

Tobacco companies are a brilliant business even though I don't smoke myself. They use e-cigarettes brilliantly to keep profits up, and their customers don't stop buying their products overnight.

For me $PM+2.2%. By far the biggest potential for the future through the move away from classic cigarettes

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