Altria Group Inc. (MO) is one of the world’s largest tobacco companies. It focuses almost entirely on the U.S. tobacco market, with a side interest in the wine trade. Altria is a favorite holding of dividend-oriented exchange-traded funds (ETFs) and investors.
The company has six main subsidiaries and investments.
Philip Morris USA
With over half of the domestic retail cigarette market, Philip Morris USA is the largest cigarette company in the United States and is best known for the iconic Marlboro brand. It also sells other popular brands, including Parliament, Muratti, Lark and Virginia Slims.
Faced with extremely high levels of sales tax on cigarette sales, government regulation and the ever-present chance of litigation, Altria still predicts modest growth for this highly profitable subsidiary.
U.S. Smokeless Tobacco Company
U.S. Smokeless Tobacco Company is the producer of Copenhagen, Skoal, Red Seal and Husky brands of smokeless tobacco and is the world’s biggest marketer of chewing tobacco. Smokeless tobacco products face the same headwinds as cigarettes and greater negative health issues, but the company expects modest growth for this division.
John Middleton produces pipe tobacco and cigars. The main pipe tobacco brands are Middleton's Cherry Blend, Carter Hall and Prince Albert. The leading cigar lines are Black & Mild, Gold & Mild, Middleton's Cherry Blend and Prince Albert.
As of 2016, cigars and pipe tobacco are subject to the same Food and Drug Administration (FDA) regulations as cigarettes. Previously, they were subjected to less rigorous standards regarding health warnings and the creation of new products. The change will have more impact on specialized competitors than on Altria. John Middleton should continue its low, steady rate of growth.
Nu Mark is Altria’s entry into the developing vaporizer market. Vaporizers, also known as e-cigarettes, have grown into a multi-billion dollar market. Nu Mark sells e-cigarettes and cartridges under the MarkTen and Green Smoke names.
Before August 2016, the vaporizing industry had been a hotbed of entrepreneurialism and competition, as there was little regulation. Anybody with a few dollars could buy a supply of e-cigs from China and the chemicals to make the vaping liquids. Everything changed on Aug. 1, 2016, however, when new FDA regulations went into effect. All new vaporizing products must now go through an approval process. Existing e-cigarettes were given three years to complete the approval process, which may be unaffordable for most small companies but benefit well-funded companies such as Nu Mark.
Ste. Michelle Wine Estates
One of Altria’s successful diversification ventures is Ste. Michelle Wine Estates. Ste. Michelle is a collection of dozens of wine estates and partnerships with other wineries. The emphasis is on the uniqueness of estate bottling, as opposed to creating one unified brand.
Nat Sherman is a super-premium cigarette and cigar business founded in New York City in 1930. Altria acquired the company back in January 2017. The cigarettes and cigars are crafted in Greensboro, N.C. The company's cigarette brands include Classic, MCD and Originals. Their cigar brands include Timeless, Metropolitan and Epoca.
The Bottom Line
Altria has consistently increased its dividend over time. High cash flow from businesses that require little new investment enable the company to continue its current stock repurchase plan and keep steadily increasing its dividend. It remains a defensive income stock suitable for self-directed retirement plans and dividend income portfolios of investors not concerned with the nature of the company’s business.