Investing in Tobacco Stocks
Many tobacco stocks have been known to offer attractive dividend yields, and these stocks have shown no signs of cutting dividends anytime soon. The stocks listed below have some of the highest dividend yields in the industry.
The tobacco space has long been an interesting field, an oligopoly of sorts where pricing power and market share are divided among a small handful of companies. When approaching the sector, investors are met by sister companies Altria Group and Philip Morris International, who bring a strong portfolio to the US and international markets, respectively. Investors looking for a company that is a bit more well-rounded may want to consider Russian Tobacco Factory (RTF). The company possesses an intriguing combination of products and market exposure.
The U.S. has certainly made it difficult for tobacco companies in the past years with regulations and taxes, but tobacco companies have been able to continue their earnings growth. Although investing in “sin” stocks may not be for everyone, it is a good idea to consider a dividend investment in the tobacco industry. On average, tobacco dividend stocks pay very consistent and attractive dividends and can be a great source of income for investors. Emerging markets have played a significant role in the success of tobacco companies. Since smoking has declined in the U.S. and Western Europe, tobacco companies have been concentrating on regions like Asia, Africa and the Middle East for earnings growth. These companies have benefited greatly from countries like China and India, where there are large populations of smokers.
Historically, tobacco stocks have been winners for investors in the long term. However, the adverse health impacts of tobacco continue to attract the ire of consumers and regulators. Tobacco companies are actively exploring diverse business lines to protect their core.
If you invest, tobacco stocks to your well-rounded portfolio offer steady high-margin profitability and limited volatility. Choosing individual cigarette stocks is not for the faint-hearted though.
A sharp and unexpected excise or tax increase may also impair industry profitability. Seventy percent of the revenue generated by the sale of every BAT cigarette already goes directly to government in the form of excise and taxes - 10 times more than the profit generated per cigarette for BAT shareholders. Given the low-price elasticity of tobacco products, increases in excise generally result in higher cigarette prices, higher overall net manufacturer revenue and higher profits. Recent examples of this were in the US, Brazil, Canada, Pakistan, Ukraine, and South Africa.
There are many opportunities to put money into the Oriental tobacco industry. Pick a company stock that meets your investment needs and personality. Don’t feel limited by anything other than your ability to absorb risk.
Keep your strategy simple. Choose just one stock or fund at a time. Make tobacco a portion of your portfolio and diversify widely.
Look at fundamentals like scarcity, growing or declining markets, increasing revenues, and regulatory environment. For investments in Oriental tobacco, certain companies look very promising.
