TOBACCO STOCKS: ARE THEY GOING TO DIE?
One of my favorite television characters is Dr. Martin Ellingham in the BBC comedy, "Doc Martin." He is a highly skilled, but socially awkward and grumpy surgeon who develops a sudden aversion to blood. This forces him to leave his prestigious career in London and open a general practice in the fictional Cornwall seaside village of Portwenn. He is dedicated to his villagers’ health but is totally lacking in bedside manner.
One of the villagers, overly worried about a minor ailment, comes to see Ellingham. After a quick exam, the man asks, “Doc, am I going to die?” Ellingham answers in a matter-of-fact voice, “Yes. But not today.”
2024 PERFORMANCE AND ANALYSTS' REPORTS
PRICES AND DIVIDENDS
PERFORMANCE
In 2024, tobacco stocks recovered from a down year in 2023. Last year we compared the tobaccos to an S&P 500 that was dominated by the “Magnificent 7” technology stocks. This year, even with those 7 tech stocks averaging an increase of nearly 50%, the tobacco stocks outperformed the S&P 500. Investors had a marked change in sentiment. Concerns about the decline of tobacco stocks seemed to diminish. These 5 companies are actively rolling out new strategies for “non-combustible” products –other than cigarettes that are also nicotine delivery systems.
In 2024, the 5 major tobacco stocks averaged appreciation of 23.8% with a dividend yield of 6.8%, a total return of over 30%. Looking at the stock performance for the last three years, even with the poor year 2023, tobaccos outperformed the S&P 500 Index by almost 5% a year. The tobacco stocks tend to be less volatile than the popular averages. Their low price/earnings ratio and generous dividend yield mute their volatility.
ANALYSTS
This is not to say that the future of these companies is rosy. But the negative outlook for the “nicotine delivery’ companies is ironic.
Rae Maile, a long-time tobacco analyst in London has pointed out that most people believe the death of tobacco is just around the corner. He says that this is not surprising; the tobacco companies themselves started saying the same thing 70 years ago. And yet they are still here, with profitability that is among the top industries in the world. So perhaps they will die – but not today.
[Three young men have become my dear friends because of our interest in tobacco investing. They interviewed Rae Maile, and you can hear Rae’s thoughtful commentary by clicking on this podcast LINK. He will enlighten and entertain you. Rae brings 35 years of experience covering the tobacco industry. He gives a realistic perspective on the future of nicotine.]
We have no crystal ball, but we should keep in mind that Kings, Tsars, and other governments have been trying to stamp out the “loathsome weed” for nearly 600 years and, so far, have failed. If the past is prologue, people may continue to demand nicotine products for a long time.
The table below lists my favorite analysts who follow tobacco and their writings in 2024. They also write on other investment topics that are informative and useful. Their insights on investing are excellent.
This LINK will take you to a list of their reports. You can click on any report to access it online.
Wonderful note, Gene. Thanks so much for highlighting our interview with Rae - we had a great time talking with him, and it's my favorite episode we have recorded thus far.
I look back fondly on our time in NC last November. I hope the group can find the time to do a similar excursion down the road.
From the start of the “demise” era in the mid 1950’s I remember attending a meeting where one of RJR’s executives was giving a talk to an employee group. He made a comment which has stuck with me full time since, regarding Tobacco and its economic importance to the struggling colonies; “Bless Pat, the first thing exported from here were Hogsheads of Tobacvo to England”! I didn’t fact check the comment but accepted it as being, well, reasonable. I believe the speaker was the newly appointed Director Chas. b. Wade, Jr but wouldn’t swear to that. And, it might have been an early HOBSO (How our business system operates) meeting for all employees. Required while opposing union before voting time Tobacco still here.