Altria Group (MO 0.72%) has emerged as a surprising stock market winner in 2024, propelled by an impressive earnings rebound. At the time of this writing, its shares had surged by 41% this year to their highest level since 2019.

There’s a lot for investors to like about this tobacco giant, including the stock’s 7% dividend yield as a compelling income opportunity. That being said, are there enough positives in the outlook to keep the rally going?

Let’s discuss whether Altria stock is a buy, sell, or hold in 2025.

The case to buy or hold Altria stock

The tobacco industry has undergone a dramatic transformation in recent years. Even as smoking rates continue to decline worldwide, consumers are increasingly turning to smoke-free alternatives.

These include electronic cigarettes and oral tobacco, seen as less-harmful replacements, which are proving to be highly popular. Altria, the leading U.S. cigarette manufacturer known for iconic brands like Marlboro and Parliament, appears to be successfully navigating these shifting market dynamics by diversifying into smoke-free products.

In the company’s third quarter (for the period ended Sept. 30), the story was the 7.8% year-over-year increase in adjusted earnings per share (EPS), through a better than expected top-line figure and efforts at cost controls.

Image source: Getty Images.

Altria’s NJOY e-cigarette brand posted a 16% climb in shipment volume for the consumable device cartridges, which allowed the company to capture a 6.2% retail market share, up from 3.2% in the third quarter of 2023. The other standout is ON! nicotine pouches posting a 46% volume increase.

On the cigarette side, Altria managed to balance lower sales volumes with higher pricing, particularly in the premium category, supporting company-wide cash flows. For the full year 2024, management is targeting adjusted EPS in a range of $5.07 to $5.15, representing growth of 2.5% to 4% from 2023.

That’s great news for investors when thinking about the sustainability of the $1.02 per share quarterly dividend. The company is recognized as a Dividend King, having increased its annual payout for the past 55 years, with management reaffirming a commitment to continue that streak through at least 2028. Investors who are confident in Altria’s ability to remain profitable and execute a long-term strategy have a good reason to buy or hold the stock today.

MO dividend yield, data by YCharts.

The case to sell Altria stock

It’s important to examine Altria’s outlook critically to understand what could go wrong with the investment idea.

The main challenge the company faces likely comes down to the intensely competitive industry environment. While ON! nicotine pouches contribute to growth, they struggle to match the success of ZYN from Philip Morris International. The category market share of 19.1% for ON! fell by 3.8 percentage points from last year, in contrast to ZYN’s dominant 73% market position.

There’s also a question surrounding Altria’s NJOY brand positioning and how the category will evolve given that consumers have many alternative technologies to choose from. For instance, Philip Morris plans to launch its Iqos Iluma heat-not-burn tobacco product across the United States late next year, which could potentially erode NJOY’s market share if users decide to make the switch.

All of this exists against a backdrop of complex federal and state-level regulations, adding another layer of risk that could undermine Altria’s growth prospects. Investors skeptical of the company’s relevance over the next decade may want to consider exiting their positions or reducing exposure.

The decision: I’m bullish

For all the uncertainties investors need to balance, my takeaway is that Altria’s business is alive and well heading into 2025. The growth from the smoke-free products portfolio provides a financial runway while opening new doors of strategic flexibility.

What I like about the stock as a buy right now is its attractive valuation. Besides the high-yield dividend, shares are trading at just 11 times the consensus 2024 EPS as a forward price-to-earnings ratio (P/E). That is well below Philip Morris’ forward P/E of 19.

My interpretation is that the stock is undervalued reletive to its bigger competitor. Ultimately, Altria stock offers excellent value that can work for investors within a diversified portfolio.