Best Stock to Buy Right Now: Altria vs. British American Tobacco

Smoking cigarettes has become increasingly unpopular since the public learned about the many health hazards of the habit decades ago. Yet, the tobacco industry has remained relevant, though it has boiled down to a small handful of large players.

Two of those companies, Altria Group (NYSE: MO) and British American Tobacco (NYSE: BTI), have become famous dividend stocks. Both stocks offer juicy yields of over 9%.

While they may look like similar companies and pay comparable dividends, investors should pick carefully between the two. It turns out one is a far better buy today.

Introducing our contestants

Altria Group

Altria, formerly Philip Morris Companies, is the original owner of the Marlboro cigarette brand, which it sells throughout the United States. The company was global until it spun off its international operations as Philip Morris International in 2008. Marlboro cigarettes are the leading brand in America, with an estimated 42% of the market. Additionally, Altria sells Black & Mild tipped cigars (a leading brand), Copenhagen chewing tobacco (another leading brand), smokeless products in On! oral nicotine pouches, and NJOY heat-not-burn tobacco devices. It also owns 10% of Anheuser-Busch, a stake worth over $12 billion.

British American Tobacco

British American Tobacco (BAT) doesn’t have a headlining brand as big as Marlboro, but it’s a well-diversified company both in product and geography. BAT sells several cigarette brands worldwide and owns niche brands like the menthol brand Newport, which is specific to the U.S. market. It owns the Grizzly chewing tobacco brand and is heavily into smokeless products, including Vuse electronic cigarettes, Velo oral nicotine pouches, and Glo heat-not-burn.

Collectively, both companies dominate much of the global nicotine market, with Philip Morris International the remaining player.

Two fantastic high-yield stocks

Tobacco companies are all shifting to smokeless products, but it’s a very slow transition from cigarettes. The decline of smoking is a constant headwind that prevents these companies from growing very fast. Being very profitable but having little growth means that the generous dividends tobacco stocks pay are the primary reason most people own them.

Very high dividend yields are often a red flag for dividend investors, but as you can see below, each company’s dividend payout ratio is very manageable. BAT spends just half its cash flow on dividends versus 80% for Altria. Altria’s is higher, but remember that it has that $12 billion stake in Anheuser-Busch, which it can cash in at any time.

MO Cash Dividend Payout Ratio Chart

Investors looking for steady dividend raises can look at Altria, which has raised its dividend for over 50 consecutive years, making it a Dividend King. European companies like British American Tobacco often don’t grow their payouts in a straight line, though the dividend has grown higher over time.

These stocks both have well-funded payouts with similar yields, so the winner here may depend on your preference.

Is one a better bargain?

These are very mature companies with similar business models, so investors can comfortably use the price-to-earnings ratio to see which is a better bargain today. Using 2024 estimates, Altria trades at 8.2 times earnings, while BAT trades at 6.4 times. Both are mid-single-digit, but Altria is getting a hefty 28% premium to BAT.

MO PE Ratio (Forward) Chart

MO PE Ratio (Forward) Chart

Is that warranted?

Consensus analyst estimates for the long-term earnings growth call for Altria to grow at an annualized average of 4%, compared to 5% for British American Tobacco. Without speculating too much, it could be that investors are more familiar with Altria as a U.S. company and are willing to pay more for the stock.

But if each company performs to expectations, it’s clear that British American Tobacco is the better deal today. Investors can pay a lower valuation and get better growth in return.

Here is where one stands out

As I said above, the industry is migrating to smokeless nicotine products as the future. Altria initially tied itself to electronic cigarette company Juul, paying $13 billion for a 35% stake. That investment went up in smoke after regulators cracked down on Juul for marketing to minors. Altria has since leaned into growing its oral nicotine pouches and acquired rights to NJOY, a heat-not-burn device, for $250 million. However, smokeable products were still 89% of Altria’s business last year.

British American Tobacco is much further along. It sells products in all three major smokeless categories: Electronic cigarettes, oral nicotine pouches, and heat-not-burn devices. These products are already generating over 30% of BAT’s revenue in 23 markets, and management is targeting a 50% revenue contribution companywide by 2035.

The verdict

Altria is still a tremendous high-yield dividend stock and could remain that way. However, British American Tobacco’s lower dividend payout ratio, cheaper valuation with higher growth prospects, and massive lead in smokeless products — the nicotine market’s future — make it a clear winner.

Should you invest $1,000 in British American Tobacco P.l.c. right now?

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco P.l.c. and Philip Morris International and recommends the following options: long January 2026 $40 calls on British American Tobacco P.l.c. and short January 2026 $40 puts on British American Tobacco P.l.c. The Motley Fool has a disclosure policy.

Best Stock to Buy Right Now: Altria vs. British American Tobacco was originally published by The Motley Fool