Tobacco stocks are known for big dividend yields and a recession-proof business model. Through decades of stock market history, tobacco stocks have delivered consistently for income investors.

However, the tobacco industry is concentrated in the hands of just a few major companies. Three large firms represent the vast majority of the market among U.S.-listed stocks. Those are Altria (NYSE: MO), Philip Morris International, and British American Tobacco (NYSE: BTI).

For investors trying to choose the best tobacco stock to own, it can be helpful to compare two of them side-by-side. In this article, we'll take a look at how Altria and British American Tobacco stack up against each other to determine which one is the better buy today.

Altria vs. British American Tobacco: business model

As tobacco stocks, Altria and British American Tobacco both have similar business models, but there are important differences between the two.

Altria, which was formed by the breakup of Philip Morris, only sells tobacco in the U.S. and is best known as the domestic seller of Marlboro cigarettes, which claims 42% market share in the United States.

Altria has tried to pivot away from cigarettes, diversifying into smoke-free alternatives. The most notable of those attempts was its acquisition of a minority stake in Juul, which became nearly worthless after federal regulators stepped up restrictions on Juul. Altria also took write-downs on its investment in marijuana grower Cronos Group.

These days, Altria is betting on NJOY, another e-cigarette brand it recently acquired. In the first quarter, Altria shipped 10.9 million consumable units of NJOY, meaning it's still much smaller than its cigarette business, which shipped 16.5 billion cigarettes in the first quarter. However, NJOY is growing rapidly and gaining market share.

British American Tobacco is more diversified than Altria. It sells products around the world and its product portfolio is more diversified with its cigarette brands including Camel, Newport, Lucky Strike, and Dunhill.

BAT recently took a large writedown of roughly $31 billion because of macro headwinds on cigarettes in the U.S. and because of its vision to "Build a Smokeless World."

The company has done a better job of diversifying away from cigarettes than Altria. Its new categories segment, which includes products like Vuse, which is the No. 1 e-cigarette brand in the U.S., and Velo nicotine pouches, made up 16.5% of the company's revenue last year, and it achieved profitability two years ahead of the original target with approximately $500 million in profit in 2023.

Altria vs. British American Tobacco: financials

The traditional tobacco industry is declining and has been for several years. While cigarette volumes fall, companies like Altria and British American have tried to make up for it by raising prices, but that strategy may be reaching its limits.

In its first quarter, Altria reported a 1% decline in revenue after excise taxes to $4.7 billion, and revenue from smokeable products declined 2.2% to $4.07 billion.

On the other hand, British American Tobacco reported revenue down 1.3%, but organic revenue, which excludes currency exchange, rose 3.1%, driven by organic revenue growth of 21% in new categories and overall resilient pricing.

Both companies generate strong margins thanks to their pricing power. Altria posted an adjusted operating income of 60.2% in its first quarter in its smokeables division, and an overall operating margin of 48%, though adjusted earnings per share fell 2.5%.

On the other hand, BAT reported a 45.5% operating margin for 2023 with 3.9% in adjusted organic operating income.

Altria vs. British American Tobacco: valuation and dividend

Finally, it makes sense to compare these two companies on valuations and examine their dividends as most investors are interested in these stocks for income.

Altria currently trades at a price-to-earnings ratio of 9.4 and offers a dividend yield of 8.7%. The company has a long history of raising its dividend, having raised the quarterly payout 58 times in the last 54 years. The company intends to pay out 80% of its net income as dividends.

British American Tobacco is even cheaper than Altria, trading at a P/E ratio of just 6.6, and it pays a dividend yield of 9.7%. Like Altria, it also has a long history of raising its dividend.

Altria vs. British American Tobacco: Which is the better stock?

Comparing the two stocks in the categories above, it looks like British American Tobacco is the clear winner. BAT is the more diversified of the two as the majority of Altria's business comes from just one brand, Marlboro, while BAT has multiple popular brands and global exposure.

BAT is much stronger in the smoke-free growth categories as well, and BAT is even cheaper and pays a better dividend yield.

While the results and the performance of both companies could change in the future, British American is the better buy today.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco P.l.c. and Philip Morris International and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.

Best Stock to Buy Right Now: Altria vs. British American Tobacco was originally published by The Motley Fool