Top 4 Reduced-Risk Nicotine Stocks to Watch in 2024
Today we'll review four companies innovating within the nicotine market, three with robust dividends and one with immense upside potential.
As the tobacco industry faces increasing regulatory scrutiny and changing consumer preferences, the major players are pivoting towards reduced-risk nicotine products to sustain profitability and capture market share. Among these, Philip Morris (NYSE: PM), British American Tobacco (NYSE: BTI), Altria Group (NYSE: MO), and Charlie’s Holdings (OTCQB: CHUC) stand out as four of the top reduced-risk nicotine stocks to watch in 2024.
These companies are innovating within the nicotine market, focusing on products that cater to health-conscious consumers. Three of the reduced-risk nicotine stocks highlighted below offer robust dividend payouts, while the fourth stock offers investors immense potential upside.
Philip Morris (PM)
Philip Morris, the world’s largest tobacco company outside China, has been at the forefront of the shift towards reduced-risk products. The company’s flagship IQOS device, which uses heat-not-burn technology, has seen significant success globally. Despite regulatory challenges, including a temporary ban in the U.S., IQOS continues to dominate markets where it is available. Philip Morris reported that its smoke-free products accounted for 39% of total net revenues in recent quarters, with organic revenue growth of nearly 25%.
Additionally, Philip Morris’s acquisition of Swedish Match has solidified its dominance in the nicotine pouch market with the ZYN brand, which has a 60% market share. The company’s strong pricing strategy and commitment to transitioning to a smoke-free portfolio by 2030 underscore its strategic vision. Philip Morris also offers a solid dividend yield of 5.3%, making it an attractive option for income-focused investors.
However, on June 18th, Philip Morris announced that it would halt online sales of its flavoured ZYN products in the U.S. after receiving a subpoena from the District of Columbia. The decision, influenced by regulatory pressures and changing market dynamics, led to a noticeable decline in Philip Morris stock.
Altria Group (MO)
Altria Group, known for its iconic Marlboro brand, continues to be a major player in the U.S. tobacco market. The company is focusing on its smoke-free alternatives to counteract the decline in cigarette volumes. Altria’s On! nicotine pouches have seen shipment volumes surge by over 32% year-over-year, highlighting the growing demand for oral tobacco products. Additionally, Altria’s acquisition of NJOY, which has a growing share in the e-cigarette market, positions the company well to capture the rising interest in vaping products.
Despite past setbacks with its Juul investment, Altria’s foray into nicotine pouches and its strategic acquisition of NJOY show a renewed focus on reduced-risk products. Altria’s dividend yield of 9.1% and its status as a Dividend King with over 50 years of consecutive payout increases make it an attractive option for income investors.
British American Tobacco (BTI)
British American Tobacco is another global giant making significant strides in the reduced-risk product arena. BAT’s Vuse brand leads the U.S. e-cigarette market with a 42.4% share, capitalizing on the decline of Juul. In addition to e-cigarettes, BAT’s nicotine pouch brand, Velo, has shown impressive growth, with revenue jumping 39% year-over-year in constant currency terms.
A critical move for BAT has been the strategic decision to write down the value of its U.S. cigarette business to $0, acknowledging the long-term decline in cigarette sales. This bold step underscores BAT’s commitment to generating half its revenue from non-combustible products by 2035. With a dividend yield of over 10%, BAT remains a strong, albeit riskier, choice for investors looking to benefit from the tobacco industry’s transformation.
Charlie’s Holdings (CHUC)
Charlie’s Holdings is an emerging leader in the premium vapor products space, with a significant focus on innovation. Despite a challenging first quarter in 2024, where revenue decreased by 24% to $3.1 million, the company increased its gross profit by 6% to $0.9 million and reduced operating expenses by 22% to $1.9 million. This financial resilience is attributed to the strategic development and marketing of their new SPREE BAR™ disposable pod system, which features the proprietary Metatine™ nicotine substitute.
Metatine is a game-changer for Charlie’s Holdings, offering a nicotine-free alternative that mimics the satisfaction of conventional nicotine products without the regulatory hurdles associated with tobacco-derived nicotine. The SPREE BAR, which launched in late 2023, has been well-received, and Charlie’s anticipates significant market share growth as awareness and availability expand. With plans to introduce second-generation SPREE BAR devices and Metatine-based e-liquids in 2024, Charlie’s is poised for a return to growth, potentially elevating the company to a national securities exchange listing.
Outlook & Opportunity
The transition from traditional tobacco products to reduced-risk alternatives represents both a challenge and an opportunity for major tobacco companies. Philip Morris International, British American Tobacco, Altria and Charlie’s Holdings are leading this transformation with innovative products and strategic investments.
These companies are not only adapting to regulatory pressures and changing consumer preferences but are also positioned to offer attractive returns to shareholders. As the market for reduced-risk nicotine products expands, these four reduced-risk nicotine stocks are worth watching in 2024 for their potential to deliver both steady income and the opportunity for massive growth.
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