High Yield Isn't Always High Quality: Why Target Outshines Altria as a Dividend Play

The Dividend Yield Trap That Catches Many Investors

When scanning for income-producing stocks, many investors gravitate toward the headline number: a 7.3% dividend yield sounds far more appealing than 4.5%. But this approach overlooks a critical principle that seasoned dividend investors know well—the stocks offering the most generous payouts often come with hidden risks. The comparison between Altria (NYSE: MO) and Target (NYSE: TGT) perfectly illustrates why chasing yield can lead to capital destruction.

Altria’s Structural Decline: A Dividend Built on Quicksand

At the core of Altria’s business sits cigarette production, which generates approximately 90% of revenue. The problem? Cigarette volumes are collapsing. In Q3 2025, overall cigarette volumes contracted 8.2% year-over-year, while Marlboro—accounting for 85% of Altria’s cigarette business—saw an even steeper 11.7% volume decline.

This isn’t a cyclical hiccup. The secular shift away from combustible tobacco products represents an existential challenge. Smoking rates continue to fall as consumers adopt alternatives like vaping and pouches. Yet Altria’s track record in navigating this transition has been dismal. Early investments in vapes and marijuana resulted in billions in asset write-downs, destroying shareholder value. Meanwhile, the core business continues hemorrhaging volume.

The 7.3% dividend yield masks a dangerous reality: an 80% payout ratio leaves minimal room for error. If volume declines persist—which history suggests they will—dividend sustainability becomes questionable. Altria’s management has spent years searching for a replacement revenue stream without success, making this a risky income investment for the long term.

Target’s Market Timing Problem Versus Business Fundamentals

Target faces a different challenge entirely. Same-store sales fell 2.7% in Q3 2025, dragging overall sales down 1.5%. The culprit: misaligned positioning in a shifting consumer environment.

Target has historically bet on an upscale shopping experience with premium products. Today’s consumers, concerned about finances and tightening budgets, are voting with their wallets for low-price competitors. This represents a temporary demand headwind rather than a structural business failure.

Importantly, Target’s board and management recognize the problem and are taking concrete action. Leadership changes, including the appointment of a new CEO and a strategic pivot toward team-based decision-making, signal a genuine effort to realign with consumer preferences. This is business evolution, not business collapse.

The Dividend Safety Story: Where the Real Value Lies

Target’s 4.5% yield comes attached to a 55% payout ratio—nearly half what Altria carries. This cushion is substantial. Target can absorb continued weakness without cutting its dividend, and the company’s status as a Dividend King with 50+ consecutive years of increases reinforces management’s commitment to this track record.

Altria’s lofty yield, by contrast, sits on a crumbling foundation. The math of declining cigarette volumes is unforgiving.

Which Dividend Stock Makes More Sense?

Could Altria stabilize its business? Theoretically, yes. In practice? The company has been trying for years without meaningful progress. A struggling business paired with an unsustainable dividend payout ratio creates risk that no yield can justify.

Target, facing what appears to be temporary retail headwinds, offers both a respectable 4.5% yield and a significantly safer payout structure. The company has proven financial flexibility to navigate adversity, management is implementing strategic change, and the business model remains fundamentally sound. For income-focused investors, the choice becomes clear: sustainable yield beats risky yield, every time.