The tobacco stocks have recently taken a dip in the news of the last recruitment of the Food and Drug Administration (FDA). Investors sold these securities while Secretary of Health and Human Services (HHS) Alex Azar appointed the director of the National Cancer Institute Ned Sharpless as interim FDA chief.
Tobacco stocks initially rose following news of the resignation of outgoing FDA chief Scott Gottlieb. Gottlieb had wanted to lower nicotine levels in cigarettes and ban menthol cigarettes. Now, with Dr. Sharpless in charge, these initiatives could continue to move forward.
However, investors should remember that the Surgeon General's report outlining the dangers of smoking was published in 1
However, regardless of the duration of Dr. Sharpless's term at the FDA, all tobacco titles will be subject to regulatory challenges. However, by adapting to the regulatory environment and finding new growth segments, these tobacco stocks can maintain generous dividends and continue to offer returns:
As owner of the famous Marlboro brand, Altria (NYSE: MO ) remains one of the most profitable tobacco stocks. Like his colleagues, MO's actions have fallen on FDA news. Given the background of Dr. Sharpless, it must be assumed that Dr. Gottlieb's anti-tobacco initiatives will continue.
However, I think this will serve as a non-event for the stock of MO. Equity has recovered post-announcement losses in one day. From my point of view, that shot signals that the assumption of Dr. Sharpless means the status quo, not other bad news.
Earnings estimates for this year fell from $ 4.32 per share 90 days ago to $ 4.20 per share today. However, this is old news. Investors also know that profit growth will be around 6.91% per year over the next five years. While this represents a slowdown compared to the 11.51% growth rate over the past five years, investors have also assessed the news in MO.
Meanwhile, the company continues to build new sources of revenue. Altria has invested $ 12.8 billion in the manufacturer of electronic cigarettes Juul . Furthermore, with the company's $ 1.8 billion investment in Cronos (NASDAQ: CRON ), cannabis can also serve as a new source of revenue.
Although anti-tobacco initiatives damage their traditional business, Altria appears to be maintaining growing profits and payments. The dividend yield is currently around 5.7%. This payment has increased for ten consecutive years. Moreover, investors who have held the stock since 2003 and reinvested the dividends now recover their initial investment each year in dividends alone. So while Dr. Sharpless's mandate could influence stock price growth, it is still likely that the stock will continue to deliver returns.
Imperial Brands (IMBBY)
Those who want tobacco stocks exempt from a US regulatory environment heavy, they turn to Imperial Brands (OTCMKTS: IMBBY ). This seller of the famous Kool and Winston brands sells tobacco products in over 160 countries. Furthermore, it is a world leader in quality tobacco products and serves as a leading cigar seller in many of its markets.
The United States accounted for about 21.7% of its revenue in 2018. Although this leaves most of the business outside the boundaries of the FDA regulation, the IMBBY stock has suffered like most tobacco stocks, as consumers around the world have increasingly turned away from tobacco.
It is interesting to note that the company itself has followed this anti-tobacco trend. In 2016, IMBBY changed its name from Imperial Tobacco to Imperial Brands to reflect all of its business lines. Like his most important peers, Imperial switched to electronic cigarettes. IMBBY has also entered the cannabis business. In 2018, its subsidiary Imperial Brands Ventures invested in Oxford Cannabinoid . This gave Imperiale an interest in the cannabis medicine market.
In addition, Imperial outperformed its peers in one sector: dividends. The payment of this year of $ 3.44 per share brings the return to around 10%. Although the company cut this payment in 2016, it has increased over time.
As a net asset, the IMBBY stock may not see large gains in the short term as the slowing of tobacco use and the FDA regulation weigh on society. However, the company now seeks to revive its fortunes in cannabis and e-cigarettes. This should leave the Imperial Marks well positioned to continue the generous payments.
Philip Morris International (PM)
Among the global tobacco stocks, no one is in a better position to avoid the FDA of Philip Morris (NYSE: PM ). This company once acted as Altria's offshore arm and became a separate company in 2008. Unlike any problems related to its operational base in New York, its offshore markets leave the FDA with little power to regulate PM.
Philip Morris retains the rights to sell Marlboro and other brands outside the United States. However, investors should think that the PM title is higher than "non-US Altria." It has also separated itself from other tobacco stocks by stating the desire to abandon tobacco activity.
The company has invested heavily in its iQOS electronic cigarette brand. The company hopes that iQOS will satisfy both consumers and regulators to the point that it replaces tobacco. At least so far, PM has also chosen not to enter the cannabis space. The managing director Andre Calantzopoulos cited his hopes for iQOS as one of the reasons why
However, the PM title behaved as a tobacco equity. Like his peers, he fell in the last year. In addition, he maintained the dividend philosophy of his former parent. PM has increased its payment every year since its foundation. The dividend of this year of $ 4.56 per share produces about 5.1%. The expected growth rates of 5.9% this year and 8.5% in 2020 should help the company finance further payment increases.
It is still unclear whether its iQOS-focused strategy will pay off in the long term. However, non-US focus protects the PM material from most FDA controls. Furthermore, market positioning and generous dividends should make Philip Morris a long-term winner for income-oriented investors.
At the time, Will Healy did not hold a position in any of the securities mentioned above. You can follow Will on Twitter on @HealyWriting.