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Could Investing $100,000 in Altria Make You a Millionaire?

Altria (MO -0.33%) is a consumer products maker with an industry-leading position, a long history of increasing its dividend annually, and a huge 8.5% dividend yield. There are things to like here and, on the surface, it would seem like this could be a millionaire-maker stock. But there are big risks that investors need to consider before buying.

Altria is a leader in a struggling industry

Altria’s most important product is cigarettes. Although it only operates in the United States, it owns the most important cigarette brand with Marlboro. Marlboro alone accounts for 42% of the U.S. cigarette market. That’s gigantic and creates a solid foundation for Altria’s business.

The problem is that smoking cigarettes is increasingly out of favor. For example, in the first quarter of 2024, Altria produced 10% fewer cigarettes than it did in the same period of 2023. That’s not an anomaly; it is in line with the long-term trend. To be fair, Altria has been able to offset the declines with price increases, which has supported its ability to continue increasing its dividend.

So the huge 8.5% dividend yield doesn’t appear to be at any near-term risk. And putting $100,000 into the stock today would generate a solid $8,500 a year in income. Meanwhile, the stock is still down around 40% from its 2017 highs. So there’s recovery potential here on top of the huge income stream. If shareholders chose to reinvest dividends, total return would get a huge boost. All in, there’s a solid reason to think Altria could be a millionaire-maker stock if you owned it long enough.

MO data by YCharts.

The problem is that there is a lot riding on management’s ability to navigate the ongoing declines in the cigarette demand. It hasn’t been going all that well.

Altria is still shrinking

On the one hand, investors can point to dividend growth as a sign that Altria has been successful in its attempt to deal with the changes in the cigarette business. To some extent, that is true, but this isn’t a long-term solution. At some point, price increases are likely to exacerbate the decline, which could lead to a death spiral for the business. What management really needs to do is find a way to use the cash it is generating from cigarettes to build a new business that can eventually replace, or at least complement, cigarettes.

So far, management has invested in vape maker Juul and a marijuana company. Both investments turned sour and resulted in huge write-offs that cost shareholders billions of dollars. Another big idea was to separate the U.S. business from the foreign business, which created Philip Morris International (PM 0.28%). Only that ended up creating a competitor in the non-cigarette space that is now so important to Altria’s future.

Altria’s most recent attempt at finding a new business line was the purchase of NJOY, another vaping company. NJOY is further along in its development than Juul was, so it seems like there is a higher chance of success this time around. But given the ongoing missteps, even the most aggressive investors will want to monitor NJOY’s results very, very closely. That said, if NJOY represents a key turning point for Altria’s business, an investment in this consumer products maker could indeed help turn you into a millionaire. But that’s a big gamble to make, given the past missteps.

Altria is not for the faint of heart

Investing is all about balancing risk and reward. Theoretically, any stock could end up being a millionaire maker, though most will not achieve that result. When it comes to Altria the story is pretty simple. The company has a cash cow business that is in long-term decline. If it can use the cash that is being generated to build a new growth business, it could be an attractive investment. The problem is that, so far, its efforts to grow haven’t worked out very well. Most investors will probably be better off elsewhere. Despite the huge yield, the risk/reward balance seems tilted in the wrong direction here.

This post appeared first on fool.com

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