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A Sin - Investing in High Yield Tobacco Stocks
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Feb 072012
 

I know some people won’t want to even venture into these stocks, but there is money to be made in stocks that aren’t healthy or popular.  I’m not talking about fast food today, I’m talking about tobacco stocks.  I want to talk about the following high yield tobacco stocks:
ReynoldsAmericanLogo A sin Investing in high yield tobacco stocks
altria logo A sin Investing in high yield tobacco stocks
pmi logo A sin Investing in high yield tobacco stocks
VectorGroupLogo A sin Investing in high yield tobacco stocks
lorillard logo A sin Investing in high yield tobacco stocks
universalcorp A sin Investing in high yield tobacco stocks

These high yield tobacco stocks had a killer year in 2011, and are showing income gains for 2012 as well.  Do I think tobacco stocks can duplicate their 2011 performance?  No, I don’t think so, but I think a couple of them can outperform the market.  Below I’m going to talk about the top high yield tobacco stocks for the near term.

RAI is Reynolds American Inc.  They are best known for making Camel cigarettes.  They had a monster year in 2011, going from 32 dollars a share to 41 a share, while also raising their dividend from 53 to 56 cents a quarter.  Earnings are projected to increase 6% for 2012, while paying well over 5% yield.

PM and MO are stocks spun off from Philip Morris.  PM is Philip Morris International, which basically sells tobacco products internationally.  MO is Altria Group, and the parent company of PM.  Altria sells to the domestic clients, plus owns a large share of SABMillerCoors.  PM is showing a bit extra growth over MO, but has a smaller dividend yield than MO, 4.11 to 5.73% respectively.  PM and MO also have the highest net margin of all the tobacco stocks.

VGR is Vector Group LTD.  They manufacture Liggett cigarettes and also own real estate properties.  VGR stock has not increased much year over year, but pays nearly a 10% dividend along with a 5% stock dividend.  Please refer to my article about why to own dividend stocks where I talk about VGR and the profit you can make off of it.

LO is Lorillard Inc.  They are best known for manufacturing Newport cigarettes.  LO is highly institutionally owned, at 97%.  LO also had a huge year, going from 74 a share a year ago, up to 110 bucks today.  LO has a big dividend, at 5.20 a year, a yield of 4.7%.  The only negative about LO is pending litigation against menthol cigarettes, and a decreasing net profit margin in 2011.

UVV is Universal Corporation.  They are more on the side of growing the tobacco leafs, and not on the cigarette business.  UVV pays a 4.3% dividend.  UVV scares me based on their losses on gross income in the last quarter they have reported.

So I’m not here to convince you to be a sinner and buy any of these tobacco stocks, but I wanted to give you the pros/cons of them, and I personally believe there is money to be made off of them.

My picks, I would avoid LO and UVVMO has been industry best for years.  RAI still has room to grow.  If you want to pick two to invest in for cash money, I would pick MO and VGR.  If you want money and growth, pick PM and RAI.  Hope this gives you a little insight to the options for high yield tobacco stocks for you.

Disclosure, I am long MO and VGR.

Originally published February 7, 2012

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  One Response to “A sin – Investing in high yield tobacco stocks”

  1. THANKS–helpful article!

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