Altria Group Inc (MO), Lorillard Inc. (LO): Can Big Tobacco Survive Additional Regulations?

Light up the best of the bunch

Calls for the end of tobacco have been made for several decades. While smoking rates are declining, the fact remains that big tobacco companies are as profitable as ever. This is due to tobacco companies charging higher prices for cigarettes, in conjunction with the push to alternative products such as smokeless tobacco.

Smoking rates will probably hit a bottom, as it’s unreasonable to think that cigarettes will disappear entirely from our society. And while government intervention is a constant concern, it’s unlikely that state and local governments would be foolish enough to destroy the excise taxes they depend upon.

It’s safe to say that for the foreseeable future, tobacco stocks will do what they have done for decades: produce consistent profits and return the vast majority of those profits to shareholders via dividends. In that vein, there’s no better example over time than Altria Group Inc (NYSE:MO). Wharton economist Jeremy Siegel noted in his book The Future for Investors that Altria, formerly Philip Morris, was the top performing stock from 1925 to 2003.

Altria Group Inc (NYSE:MO) is one of only three companies in the S&P 500 Index whose total shareholder return has exceeded the S&P 500’s return every year for the last 12 years. While each of these stocks offers dividend yields in excess of 5%, Altria is the market leader. The company’s flagship Marlboro brand holds half the cigarette market share in the United States. Investors interested in tobacco should pick the clear industry leader: Altria Group Inc (NYSE:MO).

The article Can Big Tobacco Survive Additional Regulations? originally appeared on Fool.com is written by Robert Ciura.

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