The heavy dividend payer has already performed impressively for investors early in 2025.
Currently, investors are highly optimistic about hypergrowth technology stocks, particularly those associated with artificial intelligence (AI). Many readers likely hold significant investments in these <a href="https://oxfordwisefinance.com/blog/ai-stocks-to-buy-in-march-down-over-45/">AI stocks</a>, which have emerged as major winners over recent years.
While there is nothing inherently wrong with allocating your portfolio towards hypergrowth stocks, if you identify as an older or more conservative investor, now might be an ideal opportunity to fine-tune your portfolio to withstand all market cycles. Although hypergrowth AI stocks tend to thrive during bull markets, they can suffer significant declines during bear markets, as witnessed in 2022. If you are uncomfortable with experiencing drawdowns of 50% or more, you may want to consider more conservative, dividend-paying stocks.
One particularly high-yielding stock that has performed well thus far in 2025 is Altria Group (MO 0.66%). This tobacco and nicotine powerhouse boasts a dividend yield exceeding 6%. Does this positioning make it the ideal stock to acquire as a safeguard against a market downturn?
Understanding Altria’s Consistent Cash Flow from Tobacco Products
Altria possesses well-known brands including Marlboro cigarettes, oral tobacco products, cigars, and electronic nicotine vapes. Additionally, it maintains a significant investment in Anheuser Busch.
In the United States, which is Altria’s core market, cigarette usage has been on a steady decline for years. Despite this trend, the company has successfully optimized its profits through strategic price increases, cost management, and the financialization of its cigarette operations. This strategic approach has propelled the company’s consolidated free cash flow to grow by an impressive 59% over the last decade, achieving $8.7 billion within the past 12 months.
To future-proof its business model, Altria is gradually investing to diversify away from cigarettes. While its cigars business remains robust, segments like electronic vaping and nicotine pouches are witnessing significant growth. Notably, Altria’s On! nicotine pouch brand reported a remarkable 26.5% volume growth last quarter. To expand its presence in new nicotine categories, Altria has recently formed a partnership with KT&G Corporation from South Korea, aiming for innovation in new nicotine pouch brands and investments in the energy sector. Although it’s too soon to assess the full impact of this partnership, it reflects Altria’s strategic focus on the future of its operations.
Image source: Getty Images.
Analyzing Altria Group’s Consistent Dividend Growth
The ongoing sales of cigarettes consistently generate stable cash flow for Altria, which is further enhanced by strategic price increases. Presently, the stock offers a dividend yield of 6.27%, with its dividend per share steadily increasing over the last decade, reflecting an impressive growth of 87.6% during that period.
The company currently reports free cash flow per share of $5.15, compared to an annual dividend per share payout of $4.24. This favorable difference between free cash flow and dividend obligations positions the company well to continue its trend of increasing dividend payouts to shareholders, even with a starting yield above 6%. Coupled with share repurchases that have reduced the number of shares outstanding, this dynamic facilitates a smoother path for Altria to enhance its dividend per share over the next decade, mirroring its success from the previous decade.
MO Dividend data by YCharts.
Should You Consider Altria Group as a Strategic Buy for Market Downturns?
Unlike other trendy sectors, such as investments in AI infrastructure that could face substantial volatility during a market downturn or recession, companies in the tobacco industry like Altria tend to exhibit resilience across various market conditions. In fact, tobacco and nicotine consumption often improves during economic downturns.
This characteristic makes Altria an excellent stock to consider for balancing a portfolio filled with hypergrowth AI stocks. By holding steady dividend stocks like Altria, investors not only receive more than 6% annually in cash returns but also secure a stock poised to perform well when the market inevitably experiences turmoil. This positioning provides a valuable counterbalance in your investment portfolio, enabling you to capitalize on any market dips.
If you’re concerned about excessive exposure to AI growth stocks, Altria Group could be the optimal choice as an ultra-high dividend-yielding stock for your investment strategy.
Brett Schafer 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.
