Better Buy: Procter & Gamble Co. vs. Altria

If you're a fan of big, dividend-paying businesses with dominant market positions and strong earnings power, you've likely heard of both Procter & Gamble (NYSE: PG) and Altria (NYSE: MO).

Today, we're stacking the consumer product giant against the tobacco titan to see which might make a better buy for investors.

Here are a few key metrics to set the stage.

Procter & Gamble vs. Altria:

Operating trends and risks

The companies are enjoying comparable sales growth trends right now, with both businesses logging slight revenue gains that appear to be accelerating. Procter & Gamble's organic growth rate improved to a 2% pace in the fiscal year that just closed from 1% in the prior year. The maker of Tide detergent and Pampers diapers is projecting another uptick this year, with growth rising to about 2.5 %.

Similarly, Altria's sales are up 2.2% over the past six months, compared to a 1.2% improvement in 2016. Both companies are targeting mid- to high-single-digit gains in earnings per share this year.

Altria's business is subject to strong -- and tightening -- regulations that expose investors to additional risks. In July 2017, for example, a Food and Drug Administration ruling seeking to reduce nicotine levels in cigarettes sent the stock down sharply. The biggest threat to Procter & Gamble's operations, on the other hand, is continued market share loss as rivals chip away at its lead franchises including Gillette razors and blades.

Cash returns

Both companies compensate for their relatively weak sales growth outlook by showering investors with cash. P&G just ended a fiscal year in which it sent a record $22 billion to shareholders -- mainly in stock buybacks -- that was funded through a mix of brand divestments and cost cuts. The consumer products giant is done selling pieces of itself off for cash for now, and that should mean lower but still substantial cash returns going forward.

Altria has traditionally relied heavily on share repurchases, but that focus is shifting toward powering a massive -- and growing -- dividend. The company aims to return 80% of adjusted earnings as dividends each year, compared to P&G's payout ratio of just 50%. That more aggressive posture helps explain why Altria's dividend has leaped higher by 8% in each of the last two fiscal years while P&G's gains have been much more modest, at 3% this year and 1% last year. Atria also has the consumer product giant beat with its 4% overall yield.

Bottom line

Neither business is likely to wow investors with huge sales or earnings growth over the coming years. That said, their leading market positions and strong finances suggest each will produce above-average overall returns, especially after including dividends in the mix. An Altria purchase exposes you to more regulatory risk in exchange for a dramatically higher dividend. Its cheaper valuation, meanwhile, might set the stage for stronger stock gains.

If you'd prefer to stay away from the tobacco industry and still want a leading blue-chip business with a decent shot at expanding profitability, consider buying Procter & Gamble today and staying patient as the management team works to extend its sales rebound into its third consecutive year.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.