Cigarette Sales Keep Falling. These 2 Tobacco Stocks Still Pay 5.5% Dividends
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Cigarette volumes keep shrinking, but shareholder payouts keep growing. Altria (NYSE:MO | MO Price Prediction) and British American Tobacco (NYSE:BTI) both fund rising dividends with pricing power and fast-growing nicotine pouches, and at current prices each pays a forward yield of about 5.5% or better. That sits below the 6% ultra-high-yield line, but both still deliver healthy income from large, established businesses. The question for income investors is whether price increases and smoke-free products can keep paying for those dividends while the core business declines.
Altria
Altria pays $1.11 per share each quarter, an annualized $4.44. With the stock at $78.65, that works out to a forward yield of about 5.65%. Shares are up 43.02% year to date, so new buyers lock in a lower yield than shareholders who bought in January. Even so, new buyers still collect a forward yield above 5%.
Dividend Safety: Covered by Earnings, Backed by Decades of Raises
Full-year adjusted diluted EPS guidance was raised to $5.66 to $5.74[1], representing 4.5% to 6.0% growth. The $4.44 annual dividend uses about 77% to 78% of that range. That is a high payout ratio, but it is normal for a mature business that has little need for heavy reinvestment.
Cash flow backs it up. In the first nine months, Altria returned $5.3 billion in dividends and $735 million in share repurchases[2]. Debt-to-EBITDA ended September at 1.9x[2], in line with management’s target of about 2x. Cash and equivalents stood at $2.697 billion. The board also approved a $1 billion[1] expansion of the buyback, which now runs through December 31, 2027. That suggests the board sees room beyond the dividend.
The track record is the strongest part of the case. The August raise of 4.7%[1] was the company’s 61st dividend increase in 57 years, which puts Altria firmly in Dividend King territory (we ranked ten of them by valuation in a free Dividend Kings report). The payout history supports that pattern: the quarterly dividend was $0.48 in 2014 and has risen step by step to $1.11 today. Management targets mid-single-digit annual dividend per share growth through 2028.
Bull Case: Pricing Power Turns Fewer Packs Into More Profit
Altria’s cigarette business remains a cash machine. Adjusted operating income in smokeable products rose 3.9% to $3.1 billion[2] in the third quarter, with margins of 64.5%. Marlboro increased its share of the premium segment to 60%[2]. Equity income from Altria’s Anheuser-Busch InBev (NYSE:BUD) stake climbed to $228 million from $123 million. In pouches, on! Shipments rose 13.3% to 47.8 million cans[2] in the quarter, which gives Altria a smoke-free product that is still growing.
The CEO linked the dividend directly to that cash flow: “Our highly cash-generative businesses supported significant returns to shareholders through dividends and share repurchases, while we continue to invest in support of our vision.”[2] The stock trades at a forward P/E of 13, a modest multiple for a company still growing earnings per share.
Risk: Volume Decline Is Relentless
Adjusted for trade inventory, Altria’s domestic cigarette volumes fell an estimated 4%[2] in the third quarter, against an industry decline of about 5%. Marlboro’s overall retail share slipped 1.0 point to 39.5% as smokers traded down to cheaper brands. Each year, price increases have to make up for fewer packs sold, and the dividend depends on that continuing to work.
British American Tobacco
British American Tobacco is a UK company, and the shares US investors buy on the NYSE are American depositary receipts (ADRs). BAT declares its dividend in pounds sterling, so the dollar amount ADR holders receive moves with the exchange rate. The current quarterly ADR payment is $0.834851, for an annualized forward payout of $3.339404. With the ADR at $60.77, the forward yield is about 5.50%. The ADR is up 12.15% year to date, a much smaller gain than Altria’s, so price gains have reduced BAT’s yield less.
Dividend Safety: Strong Cash Conversion, Heavier Debt
Over the past 12 months, BAT paid $3.253621 per ADR against diluted EPS of $3.90, a payout ratio near 83%. That leaves less room than Altria, though cash flow helps. For 2025, operating cash flow was $6.342 billion,[3] and capital spending was $551 million, leaving about $5.79 billion in free cash flow. Its 2025 results, now dated, guided to 2026 operating cash flow conversion above 95% and a £1.3 billion buyback.
Debt is where BAT needs the closest watch. Dated guidance puts BAT within its 2.0 to 2.5x adjusted net debt to adjusted EBITDA target range by the end of 2026, with net finance costs of about £1.8 billion.
In sterling, the full-year 2025 dividend was 245.04 pence[3] per share, paid in four quarterly payments of 61.26p. That was a 2.0% increase[3], and BAT has committed to further sterling dividend growth this year. For US holders, currency matters more than the sterling raise. The quarterly ADR payment rose to $0.834851 from $0.749068, a gain of about 11.5% that came mostly from a stronger pound. The same effect has worked in reverse: the ADR payment fell from $0.746191 in 2021 to $0.66919 at the end of 2022.
Bull Case: Smokeless Growth Is Starting to Show Up in Revenue
BAT is further along than Altria in moving away from cigarettes. It added 4.7 million smokeless consumers, bringing the total to 34.1 million. Modern Oral revenue rose 47.4% to $1.165 billion[3], and Velo Plus revenue in the US jumped 310%. The CEO said, “Velo Plus has delivered excellent results with triple-digit revenue growth, with Velo reaching the number 2 position in volume and value share.”[3]
Pricing still supports the legacy business, with US combustibles back to growth on price/mix of 12.3%. The Fit2Win cost program targets about £600 million in annualized savings by 2028. Earlier guidance targeted 5% to 8% adjusted diluted EPS growth for 2026, and the ADR trades at a forward P/E of 12, cheaper than Altria.
Risk: Litigation Hangs Over the Balance Sheet
BAT still has significant legal exposure. That includes Canadian settlement payments, Engle progeny cases in the US, Dutch tax assessments of up to £1.082 billion, and a Nahadi anti-terrorism claim filed in January 2026. The scale of these swings shows in the reported numbers: 2025 operating profit was lifted by a $708 million[3] net credit linked to Canada, compared with a $6.2 billion charge the year before. A large new judgment would compete with the dividend and buyback for cash.
Both companies come back to the same answer on the volume question: raise prices on a shrinking smoker base and use the cash to build nicotine pouches. Altria offers the longer US dividend record, closer coverage against earnings, and leverage of 1.9x[2]. BAT has the lower valuation and the faster smokeless growth, but US investors also take on currency swings in every quarterly check. For income investors, the dividend case depends on pricing and pouch growth outpacing the decline in cigarette volumes, and so far both companies are managing that.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
