Tobacco stocks have been reliable dividend payers because of their ability to grow earnings and consistently convert a significant portion of their revenue into free cash flow. While the industry faces regulatory challenges and shifting consumer trends, top players continue to enhance shareholder value through product innovation, revenue diversification, and international growth.
Among the leading players, Altria (MO) and British American Tobacco (BTI) stand out for their high and sustainable yields of over 7%. Let’s look at the factors that make them solid income stocks in 2025.
Tobacco Stock #1: Altria
Altria is one of the top dividend-paying stocks to consider in 2025. The tobacco giant benefits from its diversified product portfolio, ability to increase prices, and focus on enhancing operational efficiency. This strong financial foundation positions the company well to deliver profitable growth while enhancing shareholder value through higher dividend payments.
The company’s expanding earnings stream has enabled it to return more cash to shareholders. Last year, Altria raised its dividend by 4.1%, marking the 59th increase in the past 55 years. Looking ahead, this Dividend Aristocrat is well-placed to continue growing its earnings and raising dividends.
Altria’s smokable products remain a significant driver of its profitability, while its investments in smoke-free alternatives will likely fuel future growth. It aims to increase U.S. smoke-free volumes by 35% through 2028 from its 2022 base of 800 million units. Additionally, Altria plans to double its U.S. smoke-free net revenues to $5 billion by 2028, with $2 billion of that expected to come from innovative smoke-free products.
The company also focuses on expanding its international footprint, competing in oral tobacco markets and participating in the heated tobacco and e-vapor segments.
Altria's strong balance sheet, ample liquidity, and cost-saving initiatives position it well to reduce debt and return cash to shareholders.
The company is targeting a mid-single-digit adjusted diluted EPS compound annual growth rate (CAGR) through 2028, starting from a base of $4.84 in 2022. This earnings growth is expected to support a mid-single-digit rate of dividend growth over the same period.
Additionally, Altria is streamlining its operations, utilizing artificial intelligence (AI) and automation to manage costs and protect margins. The company expects its cost-saving initiatives to deliver at least $600 million in savings over the next five years. It plans to reinvest the savings in the business to accelerate growth.
While Wall Street analysts maintain a “Hold” consensus rating on Altria stock, its attractive forward yield of 7.9% and proven dividend growth track record make it a strong income investment.
Tobacco Stock #2: British American Tobacco
British American Tobacco, or BAT, is another dependable dividend stock to generate worry-free income in 2025. The company’s American Depositary Receipts (ADR) offer an attractive yield while it has a solid track record of dividend growth.
The company’s ability to produce substantial cash flows enables it to distribute significant amounts back to investors. BAT aims to generate over £50 billion in free cash flow by 2030, a target that will support further dividend hikes.
BAT's diversified strategy spans traditional combustible products and rapidly expanding smokeless alternatives. The performance of its combustible products has remained resilient, supported by portfolio optimization, pricing strategies, and operational efficiencies. Additionally, BAT has experienced robust growth in its non-combustible offerings.
The company is also poised to benefit from higher volumes and improved pricing through premium innovations. This will drive growth in competitive, high-demand categories while enhancing the price mix through premiumization and strategic category adjustments.
BAT's revenue growth will drive scale, leading to rapid gross profit expansion. Furthermore, effective revenue management and cost optimization will likely improve margins and boost profit growth. BAT is also committed to disciplined cost management, with overheads expected to remain stable in the coming years. Moreover, the company continues to explore opportunities to optimize its operations and generate more cash.
With its diversified portfolio, focus on cost reduction, robust cash flow generation, consistent dividend growth, and high yield of 8.1%, BAT remains a compelling income stock. Wall Street has a “Moderate Buy” consensus rating on the stock.
