In 2022, the global tobacco market was worth a staggering $868 billion annually. And to the surprise of many – it’s only expected to grow, not shrink. Sure, the expected growth rate is nothing impressive – “only” 2.4% a year until 2030, at which point it’ll have breached the $1 trillion-a-year mark.
Many investors may outright refuse to have these sorts of stocks in their portfolio. And that’s perfectly fine. But for those willing to consider tobacco stocks, they have a few plus points going for them from a strict investment perspective.
Chief among them is the product itself – which is “sticky” (for obvious reasons), not to mention recession proof. Further, all the companies in the space are profitable and many of them offer very healthy dividend yields.
Today’s stock pick is a market leader with a strong dividend yield that is also arguably trading at a significant discount. On top of that, it has also been actively diversifying its business to move just beyond tobacco.
Altria Group, Inc. (MO)
Known for being the owners of the iconic Marlboro brand of cigarettes, which still controls about 40% of the US retail market. In fact, Marlboro’s dominance – despite the shrinking size of the US smoker population – is what has enabled Altria to expand its product base.
Among savvy investors, Altria is known as “dividend king” – having increased its dividend for at least 50 consecutive years. That’s quite a feat, particularly when you consider that its current dividend yield is still touching 8%.
The company won’t be a fast-moving growth machine anytime soon. But even though top line revenue is fairly stagnant, Altira has still managed to grow its bottom line significantly – preserving its ability to keep paying out higher and higher dividends.
It’s also been diversifying its holdings into other segments. It’s in the midst of buying a new vaping startup after abandoning its stake in Juul (which is facing massive regulatory challenges). The company also has exposure to the alcohol and cannabis markets via stakes in Ste. Michelle Wine Estates, Anheuser-Busch, and the Cronos group (a leading Canadian cannabinoid company).
As a result of the Juul fiasco and the general nature of tobacco stocks, Altria is also trading at a P/E ratio of just about 15x – far below the S&P 500’s current levels of about 22x. For investors looking for a cheaper but very robust dividend play – Altria may be one to consider.
To your wealth,
Felix @ Ace of Investing
