Tobacco giant Altria Group (MO 2.24%), a traditionally slow and stodgy stock, saw its share price soar nearly 30% in 2024, and that increase doesn't include the stock's legendary, high-yield dividend (total return was 41%). The company, best known for selling Marlboro cigarettes in the United States, is has a solid following in the dividend investing community.

Smoking rates in the U.S. have declined for decades now. Altria sells fewer cigarettes yearly, but offsets the declines with price increases. This formula continues to pump out slow and steady earnings growth.

Should investors expect Altria's hot streak to continue in 2025? The company recently closed out 2024 with fourth-quarter earnings, including some significant updates that affected my investment thesis.

Let's look at whether Altria stock is a buy, sell, or hold going forward.

Some potential storm clouds are forming on the horizon

Altria has had an overhanging problem for years: Depending on its smokeable products (cigarettes and cigars) for the lion's share of its business. For the full 2024 year, the company derived $10.8 billion of its $11.8 billion in operating profits (91%) from smokeable products.

Shareholders generally know that while the smokeable products business is resilient and continues to fund slow dividend growth, Altria will eventually need to diversify its business away from these products. The company has positioned itself in next-generation nicotine products, like oral nicotine pouches and electronic devices (vapes). These are seen as less harmful than combustible tobacco products (though they're still bad for your health), and tobacco companies generally view them as the future.

Last year, Altria introduced enterprise goals to grow its smoke-free product volume and sales to certain milestones by 2028. Unfortunately, Altria has already walked back those goals due to competitive pressure from illegal vape products. Management expressed frustration that U.S. regulators are failing to curb illicit products, which Altria believes represent over 60% of the vaping category today.

This is a potential problem for Altria because it could steal away additional market share just as combustible volumes continue shrinking. It's not an immediate crisis, but if these challenges don't subside, Altria must pivot aggressively.

Should that worry investors who count on the stock for income?

This shouldn't stress out shareholders who depend on the stock's dividend. Altria's dividend payout ratio is still comfortable at 80% of earnings. The company also has a strong balance sheet, leveraged at a reasonable 2.1 times Altria's EBITDA, not including an $8.2 billion stake in Anheuser-Busch InBev.

Altria stock yields 7.7% at its current share price. Such high yields are often red flags, but as you can see, this dividend remains relatively well-funded. The high yield results from a company sinking almost all its cash flow into the dividend and a market commanding a higher yield to compensate for the lack of growth.

Analysts estimate that Altria will grow its earnings by an average of 3.5% annually over the next three to five years. In other words, it's business as usual -- for now. The typical dividend raise has averaged 4% in recent years, so shareholders should expect something similar, barring accelerating deterioration in the cigarette business.

Is Altria a buy, sell, or hold?

The stock's valuation has floated higher after Altria's strong 2024 rally. Its current price-to-earnings ratio is approximately 10. That's far lower than the broader market's, but given its low single-digit growth rate, it shouldn't surprise anyone. The price/earnings-to-growth (PEG) ratio is slightly higher (at 2.8) than I generally like to pay for high-quality stocks.

Plus, the stock now faces more long-term risk after management walked back its smoke-free goals. Altria's cigarette business has unique pricing power, and even if the company eventually diversifies, there's no guarantee that the revenue streams that replace smokeable products will earn the same profit margins.

Are you focused solely on dividend income? Altria's generous and durable dividend makes the stock a modest buy and arguably a hold. However, due to the longer-term uncertainty, total returns-focused investors should look elsewhere.