Institutional investors, such as endowments and pension funds and mutual funds, are the main stockholders in this country. Many of them are charged with avoiding companies focused on alcohol, tobacco, firearms, or gambling, for the sake of political correctness. Since institutional demand for these stocks is lower than that for other companies, they historically trade at a lower P/E and pay higher dividends than the stock market at large. There is always money to be made on stocks of companies selling tobacco and alcohol (aka sin stocks). There is no mutual fund I know of focusing on these two segments only; but the Vice Fund (VICEX), which focuses on tobacco, alcohol, defense and gambling stocks, has doubled the return of the S&P 500 in the past five years. I will put morality aside and look at the most-representative sin stocks between tobacco and alcohol subsectors. I chose these five because, in my opinion, their historic risks are known and already-priced in. Nonetheless, two in this analysis, Reynolds and Molson, should still be avoided.
Altria Group, Inc. (MO)
MO is listed on the NYSE, and was trading there recently at a little under $28 per share, very near the top of its 52 week range of from $28.14 to $23.20. It has a market capitalization of about $57 billion, and a trailing P/E of 16.6. It pays an annual dividend of $1.64, for an annual yield of 5.9%.
MO has endured various restructurings in recent years. In no particular order, it spun off Kraft Foods, Inc.(KFT) and Philip Morris International, Inc. (PM) to shareholders and acquired the former U.S. Tobacco. To continue reading, click here