News

Key Points

• Coca-Cola’s beverage sales are still rising.

• Altria’s smoke-free expansion will drive its long-term growth.

Coca-Cola (NYSE: KO) and Altria (NYSE: MO) are both popular blue chip dividend stocks. The former is the world's largest beverage maker, while the latter is America's biggest tobacco company. But should you buy either of these stocks in this volatile market?

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Coca-Cola is still growing at a steady rate

In addition to its namesake soda, Coca-Cola sells a wide range of other carbonated and non-carbonated drinks. It's been selling more bottled water, fruit juices, teas, sports drinks, energy drinks, and other beverages to offset declining soda consumption rates. It's also been refreshing its sodas with new flavors, smaller serving sizes, and healthier versions.

Coca-Cola only sells the concentrates and syrups for those drinks, while its independent bottling partners actually produce and sell the finished products. That capital-light business model enables it to maintain stable margins and generate plenty of cash for dividends, which it has raised annually for 64 consecutive years. That makes it a Dividend King -- an elite title reserved for companies that have raised their dividends annually for at least 50 straight years.

Altria's business model is evolving

Altria spun off its overseas business as Philip Morris International (NYSE: PM) in 2008. It still generates most of its revenue from its cigarettes (including its flagship Marlboro brand), but those shipments are declining as adult smoking rates in the U.S. drop to their all-time lows.

To offset that pressure, Altria consistently raises prices, cuts costs, and repurchases shares to boost its EPS. It's also selling more smoke-free products -- including snus, nicotine pouches, and e-cigarettes -- to reduce its long-term dependence on cigarettes and cigars.

Its acquisition of the e-cigarette leader NJOY, which closed in 2023, should accelerate that transformation. By 2028, Altria expects to generate at least $5 billion in smoke-free revenue. That would be equivalent to more than a quarter of its projected sales. Like Coca-Cola, Altria is a Dividend King that has raised its dividend 60 times over the past 56 years.

Which stock is a better buy right now?

From 2025 to 2028, analysts expect Coca-Cola's EPS to grow at a 6.6% CAGR, and for Altria's EPS to increase at a 12.5% CAGR. Based on those estimates, Coca-Cola trades at 24 times this year's earnings, while Altria has a lower forward price-to-earnings ratio of 12. Coca-Cola pays a respectable forward yield of 2.7%, but Altria pays a much higher forward yield of 6.4%.

Coca-Cola and Altria are both reliable dividend stocks. But if I had to choose one over the other, I'd pick Altria right now for its stronger growth rates, lower valuation, and higher yield. The expansion of its smoke-free business should also allay the long-term concerns about its shrinking cigarette business.

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Leo Sun has positions in Altria Group and Coca-Cola. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.