Every investor has their own opinions when it comes to investing. While one investor may prefer socially responsible names, another might prefer tech or industrial stocks. And hey, some may even prefer sin stocks.
That’s what I love about the stock market: there are so many different ways to succeed. Growth investors can leverage up big wins, while dividend investors can DRIP their way to retirement. Successful traders can zig and zag throughout the market to make their coin, while long-term investors stay the course and reap the rewards.
As investors, we like to invest in what we know and understand. For better or for worse, often times we understand sin stocks.
Oftentimes, these businesses are like cash machines, pumping out their products and taking in a handsome profit. That cash gets paid out in the form of a dividend, which investors like even more.
With that in mind, let’s look at 7 sin stocks to buy with tempting dividends:
- Altria (NYSE:MO)
- Philip Morris (NYSE:PM)
- Diageo (NYSE:DEO)
- Constellation Brands (NYSE:STZ)
- Sturm, Ruger & Company (NYSE:RGR)
- Starbucks (NASDAQ:SBUX)
- McDonald’s (NYSE:MCD)
Sin stocks tend to be fairly reliable during periods of market uncertainty, adding extra appeal to our stock picks today.
7 Sin Stocks With Tempting Dividends: Altria (MO)
Can we even talk about sin stocks if we don’t start with big tobacco? The industry is full of sin stocks with lofty yields and at the top of the sector is Altria.
Altria dishes out a huge yield of 8.8%. For reference, compare that to the 10-year Treasury yield of just 0.65%. That’s right, the benchmark 10-year yield is notably below 1% on its payout.
That makes dividend stocks even more attractive. If Altria can avoid cutting its dividend, investors will realize a return of almost 9% as long as the stock simply avoids going down. If it rallies, then the return will be even better.
The company is forecast to grow both earnings and revenue this year and next year. Even better, the stock has a sub-10 price-to-earnings (P/E) ratio.
We have top- and bottom-line growth, a huge dividend and a low valuation. That’s a combination even non-sin stock investors can get behind. Lastly, while its investment in Cronos Group (NASDAQ:CRON) and Juul hasn’t worked out the way management had hoped, Altria now has exposure outside of its standard wheelhouse.
Philip Morris (PM)
When someone thinks of cigarettes, they often think of Marlboro. The brand is owned by Philip Morris, another well-known tobacco company.
From the company:
“PMI products are sold in over 180 markets. In many of these we hold the number-one or number-two position by market share. Six of the top 15 international brands in the world are ours.”
Interestingly, Philip Morris is actually a spinoff from Altria, which owned a vast number of brands and businesses at one point.
In any regard, Marlboro is by far the most favored cigarette brand in the U.S. In fact, on the list of most popular cigarette brands in the U.S., Marlboro sits at No. 1 and outsells the next seven competitors combined.
Faced with that fact, the company is still working hard at generating a smoke-less future. It continues to dump billions of R&D dollars into its futuristic smoke-free products. The company knows the direction the world is heading in and it won’t sit by idly while that happens.
On the plus side, it continues to dump cash into its dividend too, which now yields 6.5%.
Let’s pivot out of the tobacco world and take a look at Diageo.
This stock had been on fire, roasting higher for years before peaking in 2019. Shares almost tripled from 2009 to 2013 before cooling off for a few years. From its 2016 lows to the highs in 2019, Diageo stock roared higher by another 90%.
It looked like Diageo was ready to resume that uptrend in 2020 before the novel coronavirus hit. The stock has recovered about 50% of its losses from the selloff, which still gives long-term investors a great opportunity to accumulate the stock.
The company kicks out a 2.6% dividend yield, about four times the payout of the 10-year Treasury yield.
Diageo is responsible for some of the most well-known brands in the market too. It produces Johnny Walker, Crown Royal, Guinness, Bailey’s, Smirnoff and Tanqueray, among others.
Not only are investors buying into a portfolio of strong brands, they’re also buying into solid financials. Cash and equivalents of $3.4 billion easily outweighs current debt of $1.99 billion. Plus current assets are almost double current liabilities.
Finally, Diageo cleared $1.65 billion in cash flow in fiscal 2020, which ended June 30, 2020. I like that in a company.
Constellation Brands (STZ)
Keeping with the boozy theme, Constellation Brands is another must-know name on the sin stocks list.
The company is best known for its U.S. distribution of Corona and Modelo. Don’t brush these brands off as minor, either. Modelo has quietly become the third most-popular beer in the U.S., while Constellation’s new Corona seltzer has become the No. 4 hard seltzer drink.
That’s all on top of the company’s long list of diversified brands, which has build out a portfolio of beer, wine and spirits. Pacifico joins the beer list, while Svedka vodka, High West whiskey and Casa Noble tequila round out the spirits. Constellation Brands also has a sizable wine business, ranging from low- to high-end offerings.
Finally, Constellation Brands also has a big stake in Canopy Growth (NYSE:CGC), to the tune of 38.6%. Canopy is largely considered the highest-quality name in the cannabis industry. If it succeeds — both in Canada and here in the U.S. — so too will Constellation Brands.
At just 1.6%, the dividend yield isn’t necessarily robust. But it comes after Constellation delivered an impressive quarter. Earnings beat even the highest estimate on Wall Street, while revenue topped expectations after slipping just 3.4% year-over-year in what will likely be the company’s most difficult quarter.
Double-digit free cash flow growth really helps smooth things over, too.
Sturm Ruger & Company (RGR)
Sturm Ruger & Company is an obvious candidate for any list of sin stocks. The company is a leading manufacturing of firearms, ranging from pistols to rifles. For some investors, that will make Ruger a no-touch. For others, that screams “buy, buy, buy!”
In any case, Ruger stock kicks out a 1.9% dividend yield and finds itself at an interesting crossroads.
Between the pandemic, the civil unrest and the presidential election, there have been plenty of catalysts for the stock. Interestingly though, the stock is down over 26% from its August highs.
That said, shares are still up 75% from the March lows. That’s after falling “just” 29.8% from the February highs to its coronavirus lows, while the overall market fell more than 35%.
In any regard, Ruger stock has rallied after both of its most recent earnings results. With the election coming up, it again may see more momentum in its business.
A Trump win likely keeps the firearms industry steady for the next four years. A Biden win could cause a flurry of buying between now and February. Even if the industry doesn’t see much change after that, the optics of the situation could drive sales.
You probably didn’t expect Starbucks on a list of sin stocks. However, a common saying among coffee bulls is that caffeine is the most addictive, legal drug in the world. If that’s the case, we have to consider the industry leader, Starbucks.
The company is obviously having a tough year thanks to the novel coronavirus. Overall, revenue is forecast to fall 12% in 2020. Starbucks just wrapped up its fiscal year in September, and is set to report those results in October.
But before we concentrate on the negatives of 2020, why not focus on the positives?
After going public 1992, it only turned in negative growth once, in 2009 when revenue slipped 5.7%. That year — amidst the Great Recession — the company still reported positive earnings and operating cash flow.
In other words, Starbucks isn’t immune to these short-term swoons, but it has a track record for recovery. It boasts strong long-term growth and a powerful, global brand. Its balance sheet is solid too, ensuring investors that it can make it through the current global state.
Lastly in regards to the dividend, Starbucks stock pays out a 2.1% dividend yield. It’s not robust necessarily, but the growth of that dividend is what’s attractive. Even in hard times, Starbucks just gave us a 9.8% increase to the dividend on Sept. 30.
While that is below the double-digit increases (oftentimes north of 20%) that investors have gotten used to over the years, the fact it is up at all, given the wider markets, is worth recognizing.
I want to stick with the food stocks for a minute here, ending the list with McDonald’s. While this may not be a quintessential sin stock, some investors find fast food stocks move in a similar fasion. And if that’s the case, we owe it to our readers to cover them here as well.
McDonald’s is one the most storied brands in American history. It has built a tremendous franchise spanning the globe. Seemingly every town in America has a McDonald’s and while it may constitute as a “cheat day” for some customers, we all know what the company can provide: A quick bite to go.
In September 2019, McDonald’s hiked its dividend 7.8%, while investors are awaiting this year’s dividend hike. Should they get it, it will mark the company’s 44th consecutive annual dividend increase since the company started paying one in 1976.
Consider that for a moment. Despite all the tumultuous events over the past four decades, McDonald’s has not only maintained, but raised its annual dividend.
Whether you consider the company a sin stock or not hardly matters at this point. What matters is that that 2.25% yield is as dependable as finding a McDonald’s on a six-hour road trip.
On the date of publication, Bret Kenwell held a long position in SBUX.