British American Tobacco and Altria Might Not Be Worth the Risk, but These 3 High-Yield Stocks Are

British American Tobacco (BTI 0.96%) has a dividend yield of 7.2%, while Altria's (MO 0.30%) yield is 6.9%. But those high yields come with a notable risk related to the company's long-term financials.

Enterprise Products Partners (EPD -2.83%), Enbridge (ENB 0.05%), and Realty Income (O 0.26%) have yields of 6.2%, 5.8%, and 5.6%, respectively. And there's much less risk involved with their businesses. Here's why British American Tobacco and Altria aren't worth the risk, but these three high-yield alternatives are.

The problem with British American Tobacco and Altria

Both British American Tobacco and Altria have very attractive dividend yields. And to be fair, those yields don't look like they are at risk over the near term. In fact, both companies have been raising their dividends, thanks, in part, to their ability to raise prices on the most important product they both sell: cigarettes.

That, however, is also the problem. Cigarette volumes at both companies have been steadily declining for years. In 2024, British American Tobacco's volume fell 5%. Altria's cigarette volumes declined an even more troubling 10.2%. And that's just one year -- the declines have been going on for a long time.

Price hikes have been used to offset the hit, but that can only go on for so long before there's a tipping point. Both companies are attempting to build businesses to replace cigarettes, but neither has yet found a clear solution to the ongoing problem in their most important business.

If you are tempted to buy these high-yield tobacco stocks, you might want to step back and consider other, less risky, options. Three solid choices are midstream giants Enterprise and Enbridge, and real estate investment trust (REIT) Realty Income.

The boring midstream sector

Midstream companies like Enterprise and Enbridge own the energy infrastructure, like pipelines, that help move oil and natural gas around the world. They generate fees from the use of their assets, so volatile oil and gas prices aren't a huge concern. So long as the demand for energy remains strong, Enterprise and Enbridge will generate solid cash flows to support their lofty dividends.

While there is a shift taking place concerning clean energy, global energy demand is so large that an all-of-the-above strategy is the most likely outcome. And that, in turn, will mean decades of demand for Enterprise's and Enbridge's services.

Both businesses operate in North America, but master limited partnership (MLP) Enterprise is focused entirely on the energy sector. That's neither good nor bad; it is just an important differentiation from Enbridge, where about 25% of its business is spread between regulated natural gas utility operations and a small renewable energy business.

Both of these operations produce reliable cash flows, so this isn't really a risk factor. In fact, it provides something of a diversification play for investors who prefer not to go all in on the oil and gas segment of the broader energy sector.

Note, too, that Enterprise has increased its distribution annually for 26 consecutive years. Enbridge's dividend streak is 30 years long.

Realty Income is a boring REIT

Realty Income hails from the real estate investment trust sector, which is vastly different from the midstream and tobacco sectors. It basically owns single-tenant net lease properties, which means its tenants pay for most property-level operating costs.

Any one property is high risk because there's just one tenant. But Realty Income has over 15,600 properties, so that risk isn't a material issue thanks to its property diversification. Meanwhile, the net lease approach protects the company from the impact of inflation on operating costs.

The big story here, however, is that Realty Income is the 800-pound gorilla in the net lease sector. Its size and financial strength (it has an investment-grade-rated balance sheet) provide it with advantaged access to capital markets for raising capital. Being as large as it is also allows it to take on larger deals, including acting as an industry consolidator, which peers couldn't manage on their own. Given its size, growth is likely to be slow and steady, but that's exactly what more conservative income investors are likely to want anyway.

With three decades of annual dividend increases behind it, Realty Income is the kind of reliable workhorse on which you can build a long-term income portfolio.

Risk vs. reward favors the non-tobacco dividend stocks

It is completely possible British American Tobacco and Altria manage to replace their slowly declining cigarette businesses. But they have been trying to do this for years and have yet to succeed at the task, even as cigarette volumes continue to trend lower. This is a long-term risk to their dividends that should be troubling to long-term dividend investors.

A better choice would be to avoid the tobacco sector until there's a final resolution on the cigarette issue, and, instead, look at reliable dividend payers like Enterprise, Enbridge, and Realty Income. The modest amount of yield you'll have to sacrifice will be more than made up for by the fact that you'll be able to sleep well at night while collecting their still-generous dividend checks.