Does Stronger Volume Performance Make BAT a Buy?

Altria (NYSE: MO) and British American Tobacco (NYSE: BTI) both have attractively large yields, at 7.4% and 7.7%, respectively. By comparison, the S&P 500 index is only yielding 1.2% while the average consumer staples stock has a yield of roughly 2.7%. There’s just one problem: The main product made by these two companies, cigarettes, is in decline. But there’s a difference in the rates of decline Altria and British American Tobacco are facing.

Cigarettes were once viewed as cool and it wasn’t a stigma to be a smoker. The realization that these tobacco products are addictive and cause cancer changed all of that. And today the business is facing a long-running decline in volumes. This is particularly true in North America, where Altria is focused. But it isn’t a trend that’s unique to North America, as globally diversified British American Tobacco has been dealing with ongoing volume declines as well.

The numbers are troubling. Altria’s volume declined 9.7% in 2022, 9.9% in 2023, and 10.2% in 2024. Not only is the rate of decline shocking, but it appears to be getting worse. If this were any other consumer staples company, investors would be running for the hills.

British American Tobacco’s global diversification has helped to soften the declines, but they are still a big issue. In 2022 its volume declined 5.1%, in 2023 the drop was 5.3%, and in 2024 it was 5%. The 2023 and 2024 volume numbers exclude the impact of the sale of the company’s Russian and Belarus businesses.

For an investor interested in a high-yield stock, it certainly looks like the fundamentals underpinning British American Tobacco’s business are stronger given these volume trends. But does that mean you should buy it?

So far, both Altria and British American Tobacco have used the same basic game plan to deal with falling volumes: They have been raising prices. That has worked out well, allowing both to support and even grow their dividends despite the fact that their businesses continue to hemorrhage customers. It seems likely that raising prices can only go on for so long before there’s an inflection point and the price increases simply make the volume decline speed up. Given the trend at Altria, that time might be now for the maker of Marlboro.

British American Tobacco has the rest of the world to help offset the hit it is taking in the United States, but there’s still a notable highlight to consider here. In 2023 the company changed the way it accounts for its U.S. brands, effectively admitting that they are likely to be worthless in a little less than 30 years. That’s a massive admission as to the depth of the problem the company, and the industry more broadly, face today.