Altria Group (MO 0.52%) has long been a dividend darling that attracts investors looking for a high yield. The company has raised its dividend every year since 2009, and the stock currently sports a forward dividend yield of 7%.

The questions on many investors' minds, though, is whether the dividend is healthy and if the stock can continue its recent momentum. Let's dip into the tobacco giant's recent first-quarter report to help find some answers.

Price vs. volumes

Cigarette smoking in the U.S. is on the decline. This is due to a combination of health concerns as well as the popularity of alternatives such as vaping. While Altria's Njoy vaping brand is growing nicely, it remains a very small part of the company's portfolio. In addition, it faces intense competition from illegal flavored Chinese vaping products.

To counteract the declines in smoking, Altria has aggressively raised prices over the years to try to maintain revenue. This can be seen in its Q1 results.

For the quarter, Altria's cigarette shipment volumes sank 13.7%. Its leading Marlboro brand saw shipments drop 13.3%, while other premium brand shipments fell 9.2%. Discount brand shipments plunged 24.9%. Cigar volumes, meanwhile, were down 2.9%.

Revenue for its smokeable segment, net of excise taxes, fell 4.1% to $3.91 billion, helped by higher prices. Adjusted operating income for the segment, meanwhile, rose 2.7%, helped by lower manufacturing costs.

In its oral tobacco product segment, shipment volumes fell 5% to 175.4 million cans. Its on! nicotine pouch brand grew volumes 18%, but that was not enough to overcome declines in its traditional chewing tobacco brands. On! gained market share, but still remains behind market leader Zyn, owned by Philip Morris International. Overall oral tobacco product revenue rose by 0.5% to $654 million, while adjusted operating income was flat.

Altria's Njoy vaping business is seeing strong growth, but it's currently too small to move the needle. Consumable shipments jumped 23.9% to 13.5 million units. Njoy device shipments, however, plunged 70% to 0.3 million units. The company said the brand gained 2.4 points of U.S. market share in the quarter, increasing to 6.6%.

Overall revenue, net of excise taxes, fell 4.2% to $4.52 billion. Adjusted earnings per share (EPS) rose 6% to $1.23.

Looking ahead, Altria maintained its full-year guidance for adjusted EPS of between $5.30 and $5.45, representing growth of between 2% and 5%. The company said its forecast takes into account the current estimated impact of increased tariffs on its costs. It noted that cost inflation is impacting consumer behavior, leading more smokers to opt for discount brands.

Image source: Getty Images. 

Is the dividend safe?

For now, the answer is yes. The company generated $2.72 billion in operating cash flow and $2.68 billion in free cash flow in the quarter, while paying out $1.73 billion in dividends. That's a more than 1.5 times coverage ratio based on free cash flow.

It ended the quarter with net debt of $21.3 billion. However, its leverage (net debt/EBITDA) was only 1.7 times.

Longer term, though, there is a concern that the company will no longer be able to keep up big price increases in the face of plummeting volumes.

Is Altria stock a buy?

Altria's stock has had a solid year in the face of a volatile market, and it pays a robust dividend. However, cigarettes are a declining business in the U.S., and its smoke-free businesses just aren't large enough to make a difference at this point. Vaping could be an opportunity, but users prefer flavored illicit products from China that are readily available in the U.S. despite being illegal.

The company will likely continue to increase prices to help mitigate declining volumes, but at some point that could reach a tipping point. The dividend is currently safe and has room to grow in the meantime.

From a valuation standpoint, the company trades at a forward price-to-earnings (P/E) ratio of 11 based on the analyst consensus for 2025. That's higher than British American Tobacco, but much cheaper than its former international unit Philip Morris International. However, Philip Morris is growing nicely and doesn't face the volume declines of its two peers, given that it does not sell cigarettes in the U.S. The tobacco market outside the U.S., meanwhile, has held up relatively well.

MO PE Ratio (Forward) data by YCharts

While some investors will undoubtedly invest in Altria stock for its dividend, I prefer Philip Morris in the tobacco space. It has much more attractive growth opportunities, and its cigarette business has been seeing modest volume growth.