This 7.7% yielding Sin stock just raised its dividend payout

Although the stock market has generally held up over the past two years, that’s it S&P 500 and Nasdaq Composite has had strong sales over the past month. While sales are par for the course in the market, they can be quite upsetting for inexperienced investors.

One company that has been a consistent winner for decades is the tobacco company Altria (MO 0.26%). Altria is considered a shame stock because of the products it sells — primarily cigarettes.

While investing in syn stock may not be for everyone, I see some encouraging reasons to take a look at Altria. Let’s explore why now could be a great opportunity to buy Altria stock.

Altria is an incredibly reliable source of passive income

Altria has earned a spot on an exclusive list known as Dividend Kings — a rare class of companies that have increased their dividend payments for at least 50 consecutive years.

Earlier this month, Altria told investors that its board approved a 4.1% increase in the company’s quarterly dividend. Altria’s quarterly dividend is now $1.02, or $4.08 per share on an annualized basis.

Most impressively, the new dividend hike is the 59th increase in the past 55 years.

With Altria stock yielding nearly 8%, it’s hard to pass up this reliable source of passive income.

Why there could be more winnings in store

Altria is best known for its Marlboro and Black & Mild cigarette brands, as well as oral tobacco products such as Skoal. However, over the past two years, Altria has made a concerted effort to move away from its legacy tobacco portfolio.

In particular, Altria is making significant investments in a category called smokeless tobacco. Smokeless tobacco includes products such as electronic cigarette vaporizers and oral nicotine pouches.

According to Grand View Research, the total addressable market (TAM) for nicotine pouches in the US was nearly USD 1 billion in 2023. In addition, Grand View predicts that the market for nicotine pouches will grow at a compound annual growth rate (CAGR) of 33.6% between 2024 and 2030.

Beyond nicotine pouches, Altria has a huge opportunity in the e-cigarette and vaping market. Grand View Research estimates that the US TAM for e-cigarettes and vaping products was valued at $28 billion in 2023 and is expected to grow at a 30.6% CAGR between 2023 and 2030.

Last year, Altria made a splash in the vaping niche with the acquisition of NJOY. In about a year, Altria has expanded its NJOY footprint threefold and is now in more than 100,000 stores.

I see the effort to break into the smokeless tobacco industry as a smart move for Altria. I believe this represents an exciting new chapter for the company as Altria enters new and growing opportunities adjacent to tobacco.

Image source: Getty Images.

Should you buy Altria stock right now?

Altria currently trades at a price-to-earnings (P/E) ratio of approximately 9.1. By comparison, the S&P 500’s P/E ratio is around 28. Clearly, investors are ignoring Altria’s growth prospects relative to the broader market.

MO PE report data by YCharts

However, given the themes explored above, I think investors are overlooking Altria’s moves in emerging areas. Although traditional products such as cigarettes or chewing tobacco may slow or contract business, Altria has wasted no time in identifying new growth markets.

I see Altria as a potentially undervalued opportunity right now. With the vaping and nicotine pouch markets expected to grow exponentially over the next few years, I think Altria will start generating new growth sooner rather than later.

What’s more, given its steep discount to the broader market and dividend yield of nearly 8%, it’s hard for passive income and dividend investors, in particular, to give up on Altria stock right now.