Investors have enjoyed a tremendous ride with unbelievably consistent returns in big tobacco stocks. Thirty years back, if you had invested $100 in Altria Group (MO), previously named Philip Morris Companies, you would have fetched substantial dividends over these years and the stocks would have been worth more than $5,000 today. Altria and other big tobacco companies like Reynolds American (RAI), Lorillard (LO) and Philip Morris International (PM) continue to lure investors due to their far higher dividend yield as compared to other stable blue chip stocks.
Domestic tobacco companies including Altria Group, Lorillard and Reynolds American all provide above 5% dividend yield, while Philip Morris International's dividend yield stands at 3.90% which is highly impressive in a world of low interest rates. However, these tobacco stocks seem to have lost their momentum over the last few months. The following graph summarizes the stock price movement of these companies over the last 2 months.
Given the declining tobacco consumption trends in U.S. and tightening of regulations in countries like Australia, tobacco stocks have taken a beating. Although I remain optimistic about Philip Morris due to a huge runway for growth in Asian markets, I'm a little skeptical about domestic tobacco companies as their earnings are dependent upon cost cuttings and price hikes and may not be sustainable.
Domestic tobacco companies have traditionally enjoyed good pricing power, but they do not seem to have the same pricing power now as promotions by the market leader Altria Group are driving Reynolds American and Lorillard to get defensive. Big tobacco stocks have followed more or less a similar pattern over the last few years, but I don't think they will continue to follow a similar path. Thus, I think it becomes extremely important to carefully choose your pick going forward. Let's analyze some key metrics of these companies.
Комментариев нет:
Отправить комментарий