Altria(NYSE: MO) as a stock, is not all that attractive for investors. Over the past five years, the stock’s price is up roughly 10% — cumulatively. The main thing about Altria that’s likely attracting investors is its ultra-high 7% dividend yield and the fact that the dividend has risen with each passing year for several decades now.
But that enviable yield may not be as good as it seems.
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Investors interested in dividends (and getting a high yield) might be better off looking at stocks like Realty Income(NYSE: O) or Vici Properties(NYSE: Vici), which have yields of 5.6% and 5.4%, respectively. Here’s why these two high-dividend stocks could both be better choices than Altria today.
Altria’s core business is selling tobacco products, and one single tobacco product (cigarettes) makes up around 88% of the company’s revenue. On top of that, one single cigarette brand, Marlboro, accounts for roughly 90% of the smokable products Altria sells. In many ways, this company is a one-trick pony.
In fairness, Marlboro is the leading brand in North America, the region where Altria’s business is focused, with a nearly 42% market share. That makes Altria’s “trick” pretty good in some ways. But there’s one not-so-minor problem: The company’s cigarette volumes have been steadily declining.
In the first nine months of 2024, cigarette volume was off by 10.6% year over year. That’s a troubling number and a continuation of a multiyear trend toward lower volumes.
Altria has been able to offset the volume declines on its balance sheet through regular price hikes, allowing it to increase earnings each year and fund increases to its dividend each year. But the core business looks like it’s possibly in a terminal decline. Dividend investors need to tread with extreme caution because this company’s continued dividend growth is under threat.
Conservative income investors will definitely want to consider other options, which brings us to a discussion of Realty Income and Vici Properties.
Both Realty Income and Vici are net lease real estate investment trusts (REITs). A net lease requires the tenant to pay for most property-level operating costs. That’s clearly a very different business model from a consumer staples company like Altria. These two REITs have material dividend yields, so they’ll likely appeal to the same kinds of investors. Notably, both of these REITs are growing their businesses slowly and steadily over time, unlike Altria, which is dealing with a core business that’s faltering.
Realty Income is the more conservative of the two choices. Its 5.6% dividend yield is backed by a portfolio of properties spread across retail (73% of rents), industrial (17%), and a large “other” category (the balance, which includes things like vineyards and casinos).
In addition, the portfolio reaches across both North America and Europe, making Realty Income one of the most diversified REITs you can buy. It currently owns over 15,400 properties but had around 13,200 assets a year ago.
That large jump isn’t normal and was related to an acquisition. Slow and steady growth is more the norm. And that slow, steady growth has helped it increase its dividend annually for three decades at an average annualized clip of 4.3%.
Realty Income’s size (it’s the largest net lease REIT) and financial strength (its balance sheet is investment-grade rated), provide it with ample access to capital to support more slow and steady long-term growth from here (and the occasional large acquisition). If you’re looking for a financially strong and conservative dividend payer, Realty Income is likely to suit you better than Altria.
If one of the things that drew you to Altria is its classification as a “sin” stock, you might actually find Vici Properties more attractive than Realty Income. Vici Properties pitches itself as an experiential REIT, which is true, but its main property type is casinos.
Casinos get lumped into the “sin” category, along with cigarettes. Vici Properties is a much younger company than Realty Income and only went public in early 2018. That said, it has increased its dividend each year since its initial public offering (IPO).
Vici Properties’ portfolio is highly concentrated, with two tenants (MGM Resorts and Caesars Entertainment) accounting for around 75% of the rent roll. But those two tenants are two of the largest casino operators in the world. It also has another 11 tenants, some of which operate decidedly outside of the casino space.
This is a sign of the direction in which management is going, as it seeks to use its solid casino foundation to reach beyond the gaming-property niche. That’s where long-term growth is most likely to come from. Vici Properties’ portfolio is concentrated because the casino sector is pretty concentrated.
However, the saying “the house always wins” is important to remember. Even while casinos were closed down during the early days of the pandemic, Vici Properties was able to grow its dividend because casinos continued to pay the rent they owed. So far, Vici Properties and its 5.4% yield have proven to be highly reliable, and there’s no reason to think that’s going to change anytime soon.
A dividend is only as reliable as the business that backs it. Right now, Altria has a high yield, but its business is in long-term decline. Only the most aggressive investors will want to consider it.
If you’re looking for reliable dividends, Realty Income is probably a better and far-more-conservative option. If you like the “sin” angle, meanwhile, you’ll probably find Vici Properties’ growing (and diversifying) property list allows you to sleep better at night than holding Altria in your portfolio.
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Reuben Gregg Brewer has positions in Realty Income. The Motley Fool has positions in and recommends Realty Income. The Motley Fool recommends Vici Properties. The Motley Fool has a disclosure policy.
