<div id="readability-page-1"><p>Tobacco stocks have long been ripe territory for income investors, and after years of consolidation and decline, the industry has been whittled down to three major players: <strong>Altria </strong><span>(MO<span> 0.77%</span>)</span> and <strong>Philip Morris International </strong><span>(PM<span> 1.28%</span>)</span>, which were once part of the same company; and <strong>British American Tobacco</strong>. BAT deserves consideration from income investors open to tobacco stocks, but here we'll focus on just Altria and Philip Morris, two companies with similar product portfolios and who have a history of working together.</p> <p>When the old Philip Morris split in 2008 into Philip Morris International and Altria, which is the parent of Philip Morris USA, PMI took the territory outside the U.S., while Altria retained domestic operations, and the two companies have evolved since. Let's take a look at how the two stocks stack up in various categories to see which is the better buy today.</p> <div><p><img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy83NjgxNTgvY2lnYXJldHRlLXRvYmFjY28tYWx0cmlhLXBoaWxsaXBzLW1vcnJpcy5qcGcmdz03MDA?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="466" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy83NjgxNTgvY2lnYXJldHRlLXRvYmFjY28tYWx0cmlhLXBoaWxsaXBzLW1vcnJpcy5qcGcmdz03MDA"/></p><p>Image source: Getty Images.</p> </div> <h2>The state of the business: Altria vs. Philip Morris</h2> <p>Both tobacco stocks are subject to similar industry trends, including declining cigarette consumption. In its fourth-quarter earnings report, Altria reported a 7.6% decline in cigarette shipment volumes to 18.2 billion, and overall revenue, excluding excise taxes, fell 2.4% to $4.35 billion. </p> <p>Historically, Altria has made up for falling cigarette volumes by raising prices, and it's also looked to new businesses to deliver growth. However, most of those attempts have fallen flat. In 2018, it spent $12.8 billion to acquire a 35% stake in Juul Labs, though a regulatory crackdown erased nearly all the value of that investment, and what's left of it now is some heated tobacco intellectual property rights. </p> <p>An investment in Canadian cannabis grower <strong>Cronos Group </strong>also led to write-downs and losses, as that industry has underperformed since Canadian legalization.</p> <p>Now, Altria is pinning its hopes on NJOY, which it acquired a year ago for $2.75 billion in cash. NJOY brings a diverse portfolio of both disposable e-cigarettes, branded Daily, and a vape with reusable pods, Ace. NJOY's revenue is believed to be a fraction of Altria's, so its value is in its own growth potential. Altria also sold the commercialization rights in the U.S. for Philip Morris International's heat-not-burn system IQOS back to PMI, showing that it's solely focused on NJOY as its next-gen product.</p>  <p>By comparison, Philip Morris seems to have several advantages over Altria. It reported a decline in cigarette volume of just 1.9% to 151.1 billion, as international markets have faced less tobacco regulation as the U.S. has. Philip Morris has also done better at developing its next-gen business as sales of its heated tobacco units (HTUs), largely IQOS, rose 6.1% to 34 billion, which is more cigarettes than Altria sold in total. PMI's purchase of IQOS rights for the U.S. from Altria for $2.7 billion indicates confidence that it can make that product successful in the U.S. </p> <p>Because of its success in HTUs, Philip Morris's overall product shipment volume is nearly flat, and it is on the verge of driving positive growth as HTUs, which were up 6.1% in the latest quarter, replacing cigarettes. More than any other tobacco stock, Philip Morris has found success with next-gen products. That's led to solid revenue growth as well, with adjusted revenue up 8.3% to $9 billion in the fourth quarter.</p>  <h2>Profitability: Altria vs. Philip Morris</h2> <p>While Philip Morris is growing revenue faster than Altria, it's the more profitable of the two companies based on margins, which is likely a reflection of much of its sales coming from the premium Marlboro brand, and the increased disposable income in the U.S. Altria recorded an adjusted operating income margin of 59.9% last year, compared to 33% for Philip Morris.</p> <p>Still, Philip Morris managed to grow adjusted operating income by 3.7%, while Altria's was flat.</p> <h2>Valuation and yield: Altria vs. Philip Morris</h2> <p>Altria currently trades at a price-to-earnings ratio of 8.3 and offers an impressive dividend yield of 9.6%. Philip Morris, on the other hand, offers a P/E of 17.2 and a dividend yield of 5.8%. That gives Altria a clear edge here.</p> <h2>And the winner is...</h2> <p>Altria might be more appealing to dividend investors strictly looking for yield, but Philip Morris is the better choice. The company has a much brighter future as its next-gen business has reached scale and cigarette volumes are declining more slowly, and it doesn't face the same regulatory restrictions that Altria does.</p> <p>Altria's dividend does look safe for now, but it can't rely on raising cigarette prices forever. While the NJOY acquisition could pay off, it could also take years for it to positively impact the bottom line. Only one of these stocks offers growth, stability, and high yield, and that's Philip Morris.</p>  </div>

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<p>Tobacco stocks Altria and Philip Morris are compared in various categories. Altria has faced declining cigarette volumes and unsuccessful attempts at diversification, while Philip Morris has shown growth in its next-gen business and better profitability. Altria has a higher dividend yield, but Philip Morris is considered the better choice due to its brighter future and lower regulatory restrictions.</p>

Better High-Yield Dividend Stock to Buy: Altria vs. Philip Morris