Is Tobacco Investing for You?

If you have concerns about socially inappropriate investing quit reading now, as this version is about tobacco investing. There are several stocks that do business here I will concentrate of some I believe to be excellent long term investments that pay above average divys.

 

Tobacco is a highly addictive product. The people worldwide who use this product seems to never be bothered by economic concerns and that provides solid fundamentals for companies who produce and sell tobacco to users. As an investor there are few places where you can gain dividends this high and stock prices that rarely go down.

 

MO, Altria, is simply the best of breed. Price currently is about $23-$24 and it pays a 6.5% dividend. MO raises their dividend every year and last year raised it twice. There are few companies who are so investor friendly and so well run at MO. Frankly this company is a annuity. A government guaranteed monopoly.  The government is hooked on the Master Settlement pay outs agreed to back several years ago that brought tobacco companies under the FDA.  Your dividend is basically guaranteed by the fact no one can advertise tobacco and therefore no one can take market share away. As an investor it is just hard not to like Altria, whose main product is Marlboro cigarettes. 

 

Another tobacco company is RAI, Reynolds American, which produces Winstons and Salems. Reynolds, based in NC, is the remnants of the old RJ Reynolds company and is a well managed company that also pays a nice dividend at 6.2%. Reynolds just raised it's dividend nicely and I would expect to see similar increases regularly. Reynolds has more exposure to smokeless tobacco than most other tobacco producers and that is the growing side of this business.

 

LO, Lorrilard is the king of menthol cigarettes. The main products are menthol flavored cigs. LO is facing some threats to this segment of the business as the FDA is considering banning menthol from cigs. The price of the stock has been hurt recently by this threat hanging over the company with the price being down about $10 per share to around $75. LO pays a nice divy as well at 6.0%. Frankly I do not see the FDA outright banning menthol as it would for all intents and purposes kill the company. Obviously investors think the same or the stock price would be down even more.  LO is highly profitable and has aggressively raised it's payout of late, so if you have some willingness for risk buy some shares now and when the FDA makes their decision sometime in March you could get a nice bump in capital gain.

 

PM, Phillip Morris, is the spun-off international wing of Altria. PM also pays a good dividend at 4.5%. PM, now based in Europe is now outside the threat of American trial lawyers and is the growth company for tobacco. They have significant assets in Japen and China. Yes, China, where over one billion potential customers lie and the chance to gain serious additional profits.

 

I am currently either long or own options on all securities named above except PM.