Over the years, investors have become less comfortable with certain so-called sin stocks. However, these sinful stocks can produce heavenly returns for patience investors who hold through the turbulence. So what are some of the best sinful stocks?
Sin stocks trend to command lower valuations and oftentimes have notable dividend yields. That said, it depends on how you classify a sinful stock. These can include liquor companies, tobacco firms, oil producers and fast food restaurants.
Some investors will find all of these names offensive. Others won’t take issue with them at all. Our objective here isn’t to judge these investors or these businesses, but to simply evaluate them for what they are.
With that in mind, let’s look at some high profit sinful stocks.
Fast food seems like the least offensive sin stock category. While some investors may take issue with these firms from multiple perspectives — climate change, health, etc. — many consumers would disagree.
When we look at McDonald’s (NYSE:MCD) we find a profit center, as the company continues to mint cash and generate impressive results.
Although the overall market has improved a great deal over the last month or two, McDonald’s has been a leader in consistency. Shares hit an all-time high in early May, but also hit a new high in October 2022 when there was much more uncertainty in the broader market. Lastly, it began grinding out new-high after new-high in early April.
The company is forecast to generate roughly 8% revenue growth this year and 7% growth in 2024, while churning out roughly 10% earnings growth in both years. That does leave shares trading at about 25 times earnings, but given the momentum in the stock, it’s no surprise.
Constellation Brands (STZ)
If you want a little more bourbon, investors should look at Brown Forman (NYSE:BF-B,NYSE:BF-A). If they want more broad-based spirits, perhaps consider Diageo (NYSE:DEO). However, for others maybe they will consider Constellation Brands (NYSE:STZ).
The company commands a $44.5 billion market capitalization and pays out a dividend yield of about 1.5%. That makes it the smallest name on this list with the lowest yield.
It sports a portfolio filled with alcohol-related products, including beer, wine and liquor. It’s responsible for beer labels such as Modelo, Corona and Pacifica, wine labels like Kim Crawford and Robert Mondavi, and liquor like Svedka, Casa Noble and High West.
Lastly, with a sizable investment in Canopy Growth (NASDAQ:CGC), Constellation Brands has the added kicker of cannabis. Although that stock has struggled, Constellation has a big position in a potentially large future industry.
In August, the company gave a 4.4% boost to its payout. While not massive necessarily, it speaks to management’s confidence in the firm’s earnings and cash flow. That’s as the “increase marks the 57th dividend increase in the past 53 years.”
Altria could have simply passed along a ~1% increase to its dividend just to keep its streak alive. Further, doing so at its current valuation would have made it even easier.
Shares trade at just 9 times earnings. That’s despite consensus expectations calling for decent (albeit slow) growth. Despite estimates of sub-2% revenue growth this year and next year, analysts expect Altria to grow earnings 3% this year and 4% next year.
It’s not crazy growth, but an 8.3% dividend yield that’s been consistently paid out, paired with a stock at sub-10 times earnings may be enough to attract some income-oriented investors.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.