Altria (MO 1.19%) and Kraft Heinz (KHC -1.88%) are blue chip consumer staples giants that for a time were parts of the same company. Altria, the domestic tobacco giant formerly known as Philip Morris USA, bought Kraft Foods in the 1980s and owned it until its spin-off in 2007. In 2015, Kraft Foods merged with H.J. Heinz to become Kraft Heinz.

Over the past 10 years, Altria's stock price dipped by 2%. But when factoring in reinvested dividends, it delivered a total return of 86%. Meanwhile, Kraft Heinz's stock has declined 66% since its merger closed on July 2, 2015. Even if you had reinvested the dividends it paid out, you would still have ended up with a negative total return of 49%. Altria was clearly the stronger investment, but will it stay ahead of Kraft Heinz from here?

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Altria faces long-term challenges

Altria has been struggling as smoking rates in the U.S. have declined over the past few decades. It has offset falling sales volumes by raising cigarette prices, cutting costs, and buying back stock to boost its earnings per share (EPS).

From 2014 to 2024, Altria's revenue (net of excise taxes) and adjusted EPS grew at compound annual rates of 3% and 7%, respectively. But during that same period, its annual cigarette and cigar shipments dropped from 126.7 billion sticks to 70.3 billion sticks. Its share of the retail cigarette market shrank from 50.9% to 45.9%.

Altria's core business is still shrinking and the company is gradually running out of room to raise cigarette prices and cut costs. That's why it's been making an effort to boost sales of smoke-free products like snus, nicotine pouches, heated tobacco, and e-cigarettes.

It bought e-cigarette maker Njoy for $2.8 billion in 2023 to accelerate that evolution, but that massive acquisition is only expected to become accretive to its cash flow this year, and won't be accretive to its EPS until 2026.

For 2025, Altria expects its adjusted EPS to grow by 2% to 5% to a range of $5.22 to $5.37. That should allow it to easily cover its annual dividend of $4.08 per share, which at current share prices gives it a hefty forward yield of 7.8%. And at $52, the stock looks cheap at just 10 times the midpoint of that estimated earnings range. Its high yield and low valuation should limit the stock's downside potential as the company continues to diversify away from traditional cigarettes and cigars, but it will still face a lot of unpredictable challenges.

Kraft Heinz is recovering from a lengthy downturn

In addition to its two core brands, Kraft Heinz also owns a host of other well-known brands such as Oscar Mayer, Ore-Ida, Philadelphia, Classico, Velveeta, Grey Poupon, Maxwell House, and Kool-Aid. But after its merger in 2015, Kraft Heinz's management focused too much on cutting costs instead of launching new marketing campaigns and refreshing its aging brands.

As a result, the company struggled to keep pace with competitors. Those mistakes finally caught up to the company in 2019, when it took a $15 billion writedown on top brands, cut its dividend, and faced an SEC probe of accounting practices. Its then-CEO Bernardo Hees stepped down in the wake of those setbacks.

But Hees' successor, Miguel Patricio, divested Kraft Heinz's weaker brands, acquired faster-growing brands, refreshed its classic brands with new products and ad campaigns, and streamlined expenses. Those efforts set it up for a robust recovery during the pandemic in 2020 and 2021. Over the following three years, it steadily raised its prices in excess of inflation.

Kraft Heinz's newest CEO, Carlos Abrams-Rivera, has stuck with Patricio's turnaround strategies since taking the helm a year ago. However, in late October, the company forecast that for 2024, its organic sales would land between flat and down 2% as it has run out of room to raise prices. For 2024, analysts expect it to report a revenue dip of 3%, but an adjusted EPS gain of 1%.

But in 2025, analysts expect Kraft Heinz's revenue to stay nearly flat as its adjusted EPS grows 1% to $3.05. That growth rate might seem anemic, but its earnings would still easily cover its forward annual dividend of $1.60 per share -- which at the current share price gives it a high forward yield of 5.4%. At $30 a share and trading at less than 10 times forward earnings, the stock looks like a bargain.

The better buy: Kraft Heinz

Altria is growing faster than Kraft Heinz and pays a higher dividend, but its core business faces existential challenges. Meanwhile, Kraft Heinz might attract more investors over the next few quarters if inflation cools, consumer spending stabilizes, and the company continues to refresh its brands. Declining interest rates should also make its dividend more appealing.

That's probably why Warren Buffett remains invested in Kraft Heinz but doesn't own any shares of Altria. I wouldn't rush to buy either of these stocks, but Kraft Heinz might just generate bigger gains than the tobacco leader over the next few years.