Altria Group Inc (MO), Reynolds American, Inc. (RAI), Lorillard Inc. (LO) & The Road Ahead for Domestic Big Tobacco

Meanwhile, Reynolds American, Inc. (NYSE:RAI) has launched its Vuse brand of e-cigarettes, which it plans to expand further this year. Reynolds has not disclosed how much sales Vuse generated during the prior quarter, but the contribution is likely to be small.

Altria is notably lacking an e-cigarette product to rival blu eCigs and Vuse, but the company has announced that it plans to release an e-cigarette later this year. Altria Group Inc (NYSE:MO)’s cash position notably rose to $3.78 billion, up from $2.90 billion a year ago, which means that it could easily acquire some smaller e-cigarette brands to unify under its banner.

Sidestepping regulations

Electronic cigarettes could help tobacco companies sidestep health and advertising regulations, since they aren’t really tobacco products. The Food and Drug Administration is currently evaluating how to properly regulate e-cigarette sales, since health tests of nicotine vapor have been inconclusive.

Since FDA tests are likely to show that e-cigarettes are healthier than traditional cigarettes, tobacco companies could sidestep marketing regulations, which currently require large, graphic health warnings on cigarette packages. Tobacco companies could also be allowed to advertise e-cigarettes through various media outlets, since they would be categorized closer to nicotine gum and patches than traditional cigarettes.

E-cigarettes could also help big tobacco companies escape tobacco-focused excise taxes, that are constant weighing on their top line growth. They could even help circumvent some indoor smoking bans.

The Foolish Bottom Line

Although the industry-wide decline of cigarette sales looks bad for the domestic tobacco industry, I believe that these three companies will continue to grow over the next decade. Rising sales of smokeless products, more diverse products such as cigars and nicotine gum, and the exciting new growth industry of e-cigarettes are all reasons to stick with these slow and steady stocks, which have all handily outperformed the S&P 500 by the wide margin over the past three years.

All three companies also pay some hefty dividends that complement their stable growth. Altria Group Inc (NYSE:MO) pays a 4.9% yield, Reynolds American, Inc. (NYSE:RAI) offers 5.0%, and Lorillard Inc. (NYSE:LO) pays 5.10%. Therefore, I believe that these tobacco stocks, as well as their international counterparts Philip Morris International Inc. (NYSE:PM) and British American Tobacco, belong in any long-term investor’s portfolio.

The article The Road Ahead for Domestic Big Tobacco originally appeared on Fool.com and is written by Leo Sun.

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