Best tobacco stocks: Best Tobacco Stocks to Buy Now 2023 Top Tobacco Stocks
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. Smoking rates have steadily declined around the world, especially in the U.S., due to health concerns and increasing regulations. Some companies have looked beyond tobacco, partnering with cannabis businesses to capture the potential growth in an industry that bears many similarities to tobacco. While Altria has looked outside of the company to diversify and cushion itself from the decline of cigarette sales, Philip Morris is pursuing an in-house strategy. The company — which sells many of the same brands that Altria does except outside of the U.S. — has pinned its hopes on heat-not-burn tobacco products.
Like Altria, Philip Morris saw a decline in its cigarette sales volume in 2021, by about 0.6%. 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.
Top tobacco stocks in 2023
ETFs and funds that prioritize investments based on environmental, social and governance responsibility. Helpful articles on different dividend investing options and how to best save, invest, and spend your hard-earned money. The company’s portfolio of new, non-combustible products is leading the way. Altria is one of just 45 Dividend Kings, an exclusive group of stocks with 50+ consecutive years of dividend increases. The long-term future is cloudy for cigarette manufacturers such as Altria, which is why the company has invested heavily in adjacent categories to fuel its future growth.
But the company has a reasonable cash position and so no long-term debt is due until 2025. Vector Group had previously paid a rising cash dividend and a 5% stock dividend annually through 2019. But its earnings and net operating cash have not covered the dividend in recent years, so the company needed to borrow and use debt to pay the dividend. This is meaningfully lower than our fair value estimate of 9.5 times earnings. This implies a modest tailwind to total returns in the years to come. Altria has largely been able to offset smoking declines with price hikes.
Risks of Tobacco Stocks
Universal’s shares trade at a moderate valuation based on the earnings and cash flows that the company generates. Tobacco stocks are widely prized by income investors thanks to their high dividend yields, stable payouts and dividend increase streaks. However, declining customer counts and usage rates are weighing on the group. 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.
The tobacco products market is forecasted to reach $287.09 billion in 2026 at a CAGR of 3.5%. The world’s population, which is currently at 8 billion, is growing steadily and is expected to be 10 billion by 2050. This will create higher demand for tobacco products in the future. Its high operating profit margin, which topped 40% in 2021, helps to ensure the dependability of the quarterly payout. British American Tobacco has become a titan of the industry as well, fueled by its $49 billion acquisition of Reynolds American in 2017.
Philip Morris reported second quarter earnings on July 21st, 2022, and results were largely in line with expectations. 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. Universal reported first quarter earnings on August 3rd, 2022, and results were quite strong. That meant gross margins rose 70 basis points to 18.5% of revenue, and adjusted operating income was up 5% to $13.3 million.
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. The stock is trading at a price-to-earnings ratio of 18.6, which is only slightly above our fair value estimate of 18. The ingredients business was 19% of revenue in the most recent quarter, up from 16% a year ago. Therefore, Universal has the most diverse business model of the major tobacco stocks. An increasing number of U.S. states have significantly raised the tax on cigarettes to reduce their budget deficits, and to reduce the potential appeal of smoking for consumers. Given the propensity of localities to use tax increases on cigarettes, the situation will likely only get worse for tobacco stocks.
Food and Drug Administration proposed to ban both flavored cigars and menthol cigarettes. The ban could reduce the number of tobacco-related deaths each year, which currently stands at over 480,000. Full BioNathan Reiff has been writing expert articles and news about financial topics such as investing and trading, cryptocurrency, ETFs, and alternative investments on Investopedia since 2016. WallStreetZen does not provide financial advice and does not issue recommendations or offers to buy stock or sell any security. It has overperformed other stocks in the tobacco industry by 2 percentage points. It has overperformed other stocks in the tobacco industry by 60 percentage points.
Tobacco stocks produce a lot of cash, but have very little capital expenditure needs, creating what could be considered perfect income stocks. 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.
The cigarette maker’s annualized average return was 20% during that time. The company’s cost saving program is expected to deliver about $2 billion in cost savings by the end of the year, and adjusted profit from operations rose 4.9% as part of this. We see $4.80 in earnings-per-share for this year following first half results. Universal Corporation is the world’s largest leaf tobacco exporter and importer.
Not surprisingly, Altria’s cigarette sales volumes have slipped, too. In 2021, its cigarette sales volume declined by 7.5% to 93.8 billion. In the first quarter of 2022, cigarette sales continued to decline, falling 6.3% from the first quarter of 2021 to 20.6 billion.
Philip Morris International
We see Altria, British American Tobacco, and Vector as offering the best total returns. 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. The stock is now trading at 13.2 times this year’s earnings estimates, which is nearly identical to our estimate of fair value at 13 times earnings.
Of the 4 analysts covering Altria Group, 25% have issued a Strong Buy rating, 0% have issued a Buy, 50% have issued a hold, while 0% have issued a Sell rating, and 25% have issued a Strong Sell. Altria Group has an average 1 year price target of $120.75, an upside of 161.65% from Altria Group’s current stock price of $46.15. Customized to investor preferences for risk tolerance and income vs returns mix. Vector Group has exhibited a volatile performance record and has failed to grow its earnings-per-share meaningfully over the last decade.
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.
In July 2017, the company acquired the remaining 48% stake in Reynolds American Tobacco that it did not already own. This cemented its competitive position as one of the world’s largest tobacco companies. Revenue was up 0.3% in constant currency, as tobacco revenue was up 0.1%, but volume fell 0.7%. Adjusted earnings-per-share grew 7.7%, however, as a small tailwind from currency translation and margin improvement drove a good bottom line result. We expect $3.32 in earnings-per-share for this year following first half results.
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. Tobacco companies have been able to raise their prices to help offset declining smoking rates. In addition, population growth partly offsets the effect of the declining percent of smokers.
