Philip Morris - The Last High-Yielding Tobacco Stock

Until not too long ago, tobacco stocks have ranked among the highest-yielding shares. Dividend yields of 5% or more at relatively moderate valuations used to be common, making the stocks very attractive for conservative investors. The underlying volume growth of the tobacco market is zero at best, hence the capital appreciation potential for tobacco companies was considered below average by many. Instead, appealing and continuously growing dividends have been the primary investment rationale for tobacco stocks, which is why they found their way into many dividend investor portfolios.This picture has changed somewhat during the past two years, when most tobacco stocks rallied, elevating them to new valuation levels and historically-low yields. One of the reasons for the recent outperformance of the sector is surely that it is considered as one of the safer havens of the stock market. Second, is the renewed merger fantasy after the acquisition of Lorillard (NYSE: LO) by Reynolds American (NYSE: RAI) was announced in July 2014. Finally, the dividend yields are still above market average and attractive compared to bonds, but the significant yield advantage of the past is gone.Stock Performance and ValuationComparing the share price development of six major tobacco stocks from the beginning of 2013, Philip Morris (NYSE: PM) is the clear underperformer. Its three U.S. peers; Reynolds, along with Altria (NYSE: MO) and Lorillard, gained more than 70% in that period. British tobacco stocks,... Read more