The Case for Tobacco Stocks and their Dividends
247WallSt.com examines the some of the highest dividend-paying stocks which happen to be big tobacco companies, two great names are Altria Group Inc. (NYSE:MO) and Philip Morris International Inc. (NYSE:PM).
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(247WallSt.com| Paul Ausick) In a sign that some analysts are losing confidence in the tobacco sellers, Citigroup has downgraded British American and Philip Morris from ‘Buy’ to ‘Hold’. Citi expects smoking to essentially disappear in the next 30 to 50 years. The analyst doesn’t offer a reason for the disappearance, but the logical conclusion is that all smokers will be dead by then.
Even if that’s true, the short-term focus is more important to investors than the outlook for 20 years from now, and the forward yields for the tobacco companies are higher for every company except Reynolds American. That suggests that overall expectations for the tobacco business are still strong.
The reason for the continuing growth projections have to do with the very nature of tobacco itself. In “Barbarians at the Gate,” the story about the takeover of RJR Nabisco back in the late 1980s, one of the tobacco company executives is quoted as saying something like this:
“Cigarettes are the perfect product. You can make them for a penny and sell them for a dollar; people are seriously brand loyal; and the product is addictive.”