Philip Morris International is a leading international tobacco company engaged in the manufacture and sale of cigarettes and other nicotine-containing products in markets outside the United States. Management’s vision is that these products ultimately replace cigarettes. Learn more about dividend stocks, including information about important dividend dates, the advantages of dividend stocks, dividend yield, and much more in our financial education center. As a result, almost all of the company’s operating cash flows end up as free cash flow.
Management believes it can double the amount of New Category revenue by 2025 over last year’s levels, which would help offset the largely stagnant core tobacco category. The company is in the process of acquiring Swedish Match AB, which Philip Morris expects to close in the fourth quarter of 2022. It also acquired Silva International, a privately-held dehydrated vegetable, fruit, and herb processing company. Silva procures over 60 types of dehydrated vegetables, fruits, and herbs from over 20 countries around the world.
The company also sells a wide range of products, including cigarettes, vaporizers, chewing tobacco, and heated tobacco. Buying shares of BAT is the easiest way to gain portfolio exposure to the whole tobacco industry via just one stock. Tobacco stocks come with a number of risks, including increased regulation and declining smoking rates. Revenue and profit growth have been slow across the industry, but these stocks still appeal to investors because their profits and dividends have been so reliable, and profit margins are still strong. Investors are hopeful that next-generation products will eventually catalyze stronger growth. This is the exact type of business model that Warren Buffett looks for; companies that need minimum capital expenses and thus, enjoy strong free cash flows.
Vector Group is an unusual combination of a real estate investment firm and a tobacco company. The latter was founded in 1873 and continues to operate today as the Liggett Group, while the real estate business came later. We expect 11% annual returns over the next five years, making BTI our second pick among tobacco stocks, as it earns a buy rating. With 1.4% expected EPS growth, and a 7.8% dividend yield with a small boost from an expanding P/E multiple, we expect 10.5% annual returns for Altria stock over the next five years, and rate it a buy. Philip Morris currently offers an attractive 5.1% dividend yield.
Tobacco Stock #2: British American Tobacco (BTI)
These negative trends have kept many investors away from tobacco stocks. However, tobacco stocks can still generate solid total returns given that they tend to offer respectable dividend yields. The key behind an investment in tobacco stocks is the inelastic demand for cigarettes relative to their price due to the addictive nature of these products. We see Altria, British American Tobacco, and Vector as offering the best total returns.
The company reported revenue of $7.83 billion, 3.1% higher year-over-year. Shipment volume rose 3% excluding Ukrainian and Russian operations, which have been severely impacted by the ongoing war. Adjusted earnings-per-share rose 4% on a currency-neutral basis to $1.48.
Shift from the developed countries to the developing regions such as Asia and Africa. This can be due to the rising population, increasing income levels, and relaxed government regulations. The tobacco market is putting out multiple premium tobacco products such as flavored, long and skinny, coloured and e-cigarettes, which has created an optimistic outlook for future growth.
If its history as part of Altria were included, it would qualify as another Dividend Aristocrat. The cigarette maker’s annualized average return was 20% during that time. But a societal shift toward healthier lifestyles and the understanding of tobacco’s effects have led to greater regulation and litigation — and both affect the value of tobacco stocks. This level of adjusted EPS should cover the company’s dividend payment, which currently yields 7.2%. Given the payout ratio of 61% expected for 2022, the dividend seems to be safe.
Tobacco Stock #3: Altria Group (MO)
Universal’s shares trade at a moderate valuation based on the earnings and cash flows that the company generates. This article will analyze the prospects of 6 of the largest tobacco stocks. Rankings are in order of projected total returns from worst to best. These are the tobacco stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.
Dividend sustainability varies by stock in this group, but overall, there is a lot for income investors to like when it comes to these 6 tobacco stocks. Investors may want to consider investing in a basket of tobacco stocks to gain exposure to different growth strategies and cut down on risk. While income investors can still count on tobacco companies to deliver dividends, the path to growth in the industry is uncertain. Tobacco stocks as a group have had a difficult time in the past couple of years. Regulatory and consumer preference changes continue to plague the group. But valuations are relatively low, dividend yields are high, and most companies are diversifying away from tobacco.
But its sales volume of heated tobacco units rose 24.8% in that same year, indicating that devices such as the IQOS have strong growth potential. In the first quarter of 2022, the company’s cigarette sales volumes increased 1.9% due to a post-Covid recovery in some markets while HTU sales increased 14.2%. Philip Morris finished the first quarter of 2022 with 17.9 million IQOS users.
Advantages of Tobacco Stocks
Over $1 billion worth of tobacco was produced in the U.S. in 2021. Tobacco stocks were up 0.4% in the last day, and up 0.67% over the last week. Investing in Marijuana Stocks The continued legalization of marijuana means growth for companies in this sector.
Features to Look for in Tobacco Stocks
Online brokers provide the platforms, powerful tools and comprehensive resources to learn, track and trade the top tobacco stocks on major stock exchanges. The regular dividend was cut for 2020 and is now $0.80 per share, and the stock dividend was suspended as well. Notably, the current cash dividend of $0.80 is still not covered by earnings or cash flow. But the company has a reasonable cash position and so no long-term debt is due until 2025.
Philip Morris International
Philip Morris International was spun off from Altria in 2008, and is charged with the production and distribution of Altria’s products outside of the United States. This distribution includes the exceedingly valuable Marlboro brand. But first, we’ll take a look at the tobacco industry’s primary concern, which is declining tobacco usage. In June 2022, the FDA said it would ban Juul in the U.S., although a lawsuit kept the ban from being immediately enforced.
However, declining customer counts and usage rates are weighing on the group. We selected the following tobacco, cigarette, e-cigarette, and cannabis stocks based on positive analyst coverage, strong business fundamentals, and market visibility. We have assessed the hedge fund sentiment from Insider Monkey’s database of 920 elite hedge funds tracked as of the end of the third quarter of 2022. The list is arranged according to the number of hedge fund holders in each firm. The advantage of investing in British American Tobacco over Altria and Philip Morris is that it provides exposure to the tobacco sector worldwide rather than in just the U.S. or just internationally.
Tobacco companies, which sell addictive wares, generate predictable cash flows. This can capture investor interest because it means healthy dividends that hedge against rising inflation. The benchmark MSCI ACWI Tobacco Index has posted a 1-year trailing total return of -1.5% compared with the Russell 1000’s total return of -13.1%. These market performance numbers and all statistics in the tables below are as of Sept. 15, 2022.
We can see that NGP produced almost 9% revenue growth for Imperial in the first half of this year, whereas tobacco was essentially flat. We see 3% earnings-per-share growth going forward, driven in part by the company’s focus on NGP. As the leader in a declining industry, we do not expect the company to deliver strong growth in the future. The company’s earnings-per-share could still rise over the next couple of years, however.