Like Altria, tobacco rivals Lorillard Inc. (NYSE:LO) and Reynolds American, Inc. (NYSE:RAI) are counted on for their dividends, which stand at roughly 5%. And, Lorillard Inc. (NYSE:LO) and Reynolds American, Inc. (NYSE:RAI) trade for between 14 and 17 times EPS, right in line with Altria’s valuation. Because of this, it’s easy to group the three tobacco titans together and assume they’re one and the same, but that would be a mistake.
First, both Lorillard Inc. (NYSE:LO) and Reynolds American, Inc. (NYSE:RAI) are much more heavily reliant on menthol cigarettes than Altria, a product that is undergoing enhanced regulatory scrutiny. Recently, the FDA said it would look into more heavily regulating menthol cigarettes. On the topic of menthol cigarettes facing regulatory danger, there’s real precedent to fuel the fire of those fears. In 2011, an advisory committee within the FDA ruled that removal of menthol from the tobacco marketplace would benefit public health greatly. It’s unclear if the FDA could outright ban menthol, but the fact that it’s a possibility is reason enough to be wary of menthol.
Moreover, Lorillard Inc. (NYSE:LO) and Reynolds American, Inc. (NYSE:RAI) simply can’t match Altria’s brand power. The Marlboro brand is one of the most recognizable brands in the world, and by itself controls 43% of the retail share of U.S. smokeable products.Even among smokeless products, Altria dominates. Its Copenhagen and Skoal brands together control 51% of the retail share of smokeless products in the United States.
Learn to love Altria’s reliability
Lorillard Inc. (NYSE:LO) and Reynolds American, Inc. (NYSE:RAI) are profitable companies and offer compelling dividends, but Altria Group Inc (NYSE:MO)’s unparalleled brand and diverse operations make it the best buy within the tobacco industry.
It’s true that the number of smokers is declining, and will continue to decline. At the same time, it’s a simple reality that human beings have vices, often distasteful ones. As a result, it’s foolish (small f) to think that tobacco will disappear entirely.
If you’re tired of enduring the market’s wild swings, Altria’s slow-and-steady nature should appeal to you. Instead of taking a flier on a speculative company that might not be around in 10 years, Altria will reliably deliver strong returns for many decades to come.
The article How This Slow-and-Steady Stock Can Make You Rich originally appeared on Fool.com and is written by Robert Ciura.
Robert Ciura owns shares of Altria Group. The Motley Fool has no position in any of the stocks mentioned.
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