Analyzing Altria's Business Model and Risk Factors for Investors

Altria's 9% Dividend Yield Isn't the Most Important Investment Factor. This Is the One Investors Should Watch

Altria has a huge dividend yield, but long-term investors need to look past the alluring yield and focus on the business. It is very easy to lose sight of the most important details when there's one detail that stands out in a huge way. For example, the income you could generate by adding ultra-high-yield Altria (NYSE: MO) to your portfolio is very alluring, given its incredibly high 9% dividend yield. But for long-term income investors trying to live off the cash their portfolios generate, buying Altria for its yield could end up being a bad decision. Here's why.

Altria is giving investors what they want

To put it simply, the biggest reason to like Altria today is its huge 9% dividend yield. The dividend has been increased for years, so management clearly understands that its shareholders want income. In fact, the entire business model is currently geared toward paying that dividend. That's a big problem if your holding period is measured in decades.

• Repeated dividend increases show management's focus on shareholder income
• Altria's dependence on cigarette business poses long-term risks

Altria has tried and failed and is trying again

Here's the thing: The volume decline isn't the only problem at Altria today. In fact, the company knows full well it has to do something or its business will eventually wither away. That's why it was an early investor in the vape space, putting money into industry pioneer Juul. It also jumped aboard the marijuana train, buying a massive stake in a grower as the industry started to take off.

1. Failed investments in vape and marijuana industries raise concerns
2. New investments like NJOY may not be sufficient to offset cigarette decline

It is entirely possible that Altria will manage to find a replacement business for its declining cigarette operation and sustain its massive dividend. But at this point, the path to that outcome is cloudy at best. Given the ongoing volume declines in cigarettes and multiple failed attempts in developing new business ventures, investors need to tread very carefully when looking at Altria today. That 9% dividend yield comes with a huge amount of risk.