Which Deserves Your Money: Target or Altria? A Dividend Investor's Reality Check

Understanding Yield Beyond the Numbers

When comparing investment opportunities, dividend yield alone tells an incomplete story. A higher percentage doesn’t automatically signal a better return. Consider this: Altria (NYSE: MO) flaunts an impressive 7.3% dividend yield, while Target (NYSE: TGT) offers 4.5%. Yet the conventional wisdom of “chase the higher yield” doesn’t apply here—and understanding why matters for your portfolio.

The Structural Problem at Altria’s Core

Altria’s business model rests on a precarious foundation. The company generates approximately 90% of its revenue from tobacco products, with cigarettes representing 97% of those smokeable goods. Marlboro alone accounts for 85% of Altria’s cigarette volume, making the company dangerously dependent on a single brand within a declining category.

The numbers don’t lie. In Q3 2025, cigarette volumes contracted 8.2% year-over-year, while Marlboro specifically experienced an 11.7% volume decline. This isn’t a temporary blip—it’s the latest chapter in a multi-year contraction story as consumers shift toward alternative products like vaping and nicotine pouches.

What makes this particularly troubling for shareholders is Altria’s fumbled attempts at diversification. The company invested heavily in vapes and cannabis, only to see both bets fail catastrophically, resulting in billions in asset write-downs. Even the company’s latest vape initiatives carry substantial execution risk given this track record.

Target’s Current Headwinds Are Temporary, Not Terminal

Target faces a different challenge: a temporary misalignment with consumer sentiment. The retailer has positioned itself as a destination for quality and upscale products, but today’s consumers are watching their wallets carefully and gravitating toward low-cost alternatives.

The evidence shows up in the financials. Same-store sales declined 2.7% in Q3 2025, with overall sales down 1.5%. For a retailer, these are meaningful numbers, but they’re not catastrophic—and critically, they reflect cyclical consumer behavior, not structural business failure.

Consumer spending patterns historically oscillate between price-hunting and quality-seeking phases. Target is currently on the wrong side of this cycle, but that’s a navigable problem. Management has recognized this reality, appointing new leadership and overhauling its strategic approach. As a Dividend King with over 50 consecutive years of annual dividend increases, Target has demonstrated the resilience and financial flexibility to weather such periods. More importantly, the company has a clear roadmap back to growth.

The Dividend Safety Question

Here’s where the math becomes crucial. Altria’s 7.3% yield comes paired with a nearly 80% payout ratio—meaning the company distributes almost all its earnings as dividends. This leaves minimal cushion if volumes continue declining or if the company needs to invest in turnaround initiatives.

Target’s 4.5% yield accompanies a 55% payout ratio, providing substantial capacity to maintain or even grow its dividend through adversity without cutting payouts. This structural difference is why Target’s yield, though numerically lower, is far more reliable.

Return Policies and Consumer Confidence

One element affecting retail sustainability is consumer experience across the board. Retailers with clear, customer-friendly policies—like flexible return windows at Target—build loyalty during difficult periods. Such operational excellence becomes a competitive advantage when consumers are evaluating where to shop, reinforcing that Target’s challenges are solvable through operational and strategic refinement rather than fundamental business model failure.

The Verdict

Altria has been searching for a replacement to cigarettes for years without success. A 7.3% yield masking structural decline is a yield trap, not an opportunity. The company’s dividend sustainability depends on executing strategies that have previously failed—a bet investors should avoid.

Target, conversely, faces cyclical pressure from an industry headwind that has historical precedent for reversal. Its lower yield reflects genuine business quality and dividend safety. The company is positioned to emerge from its current struggles with strengthened operations, and its dividend remains secure through this transition period.

For long-term dividend investors, the choice should be clear: Target’s 4.5% yield, backed by operational improvements and dividend sustainability, offers superior risk-adjusted returns compared to Altria’s unsustainable 7.3%.