For Some Smoking Dividend Yields, Look to Tobacco

The dust has settled on a turbulent 18 months in the tobacco industry, during which material excise tax increases and smoking bans were implemented in several markets across the world. The ability to raise prices is the key to earnings growth in the tobacco industry, and while these measures negatively impacted volumes, we continue to believe that the pricing power of the leading manufacturers remains intact. The market appears to agree, with tobacco stocks rising by an average of more than 20% during the last six months, outperforming the 9% increase in the S&P 500. Although we anticipate little upside to the stocks at current levels, dividend yields on tobacco stocks are running in the midsingle digits. We think dividend investors with the stomach for "fat tail" risk should still find tobacco stocks attractive in today's low-interest-rate environment.... Read more