Of the so-called “vice investments” that are available in the markets, tobacco stocks are simultaneously controversial and beloved. Unless you’ve been living in a cave, the controversy surrounding tobacco firms is self-explanatory. But many industry investors have rationalized their portfolio because of the dividends.
The beauty of tobacco stocks is not just their ability to generate passive income, although it’s certainly a big draw. The S&P 500 currently has a yield of 1.9%. Statistically, this is fairly close to the all-time low of 1.11%, back in August of 2000. With many tobacco stocks offering a minimum of 3% dividends, it’s easy to understand why yield-starved investors want in.
The other big reason is stability. Typically, most astute investors avoid companies with extremely high dividends as this usually indicates major internal problems. However, tobacco stocks are secular investments, and have weathered multiple economic storms. And for better or for worse, tobacco’s consumer base is literally addicted to the products.
But with rising health concerns, and significant social stigmatization of smoking, tobacco stocks have faced unusual pressures recently. To address these concerns, many firms are turning to technology.
E-cigarettes, or vaporizers, have taken the smoking industry by storm, in part, due to their health claims. E-cigarette vapors are purer and cleaner than tobacco smoke, which relies on the combustion process. Their electronic cousins, in contrast, vaporize their smoking materials, and avoid the problems of combustion, such as carbon monoxide emissions.
The problem is that the e-cigarette experience is alien to traditional smokers. To fill this gap, tobacco firms are experimenting with their own digital products. These advancements replicate the “true” tobacco-smoking sensation. The result is an experience that more closely mimics the traditional platform, while still providing the alleged health benefits of vaporizers.
With this new development, the tobacco industry is setting up for another great year in 2017. Here are three tobacco stocks that will continue to light things up!