I wanted to talk about something that I have been thinking about for quite some time now. Specifically, the question I ask myself is, “Should I invest in ‘sin’ stocks – specifically tobacco stocks?”
Let me start off by saying that I am in no way a straight-laced preachy type of guy. I believe that people have the choice to do whatever they wish (legal, of course). This post is just a representation of some of my analysis I did to decide on the course of action I use within my own portfolio.
There can be a big appeal to investing in stocks that focus on people’s vices. The example that might come to most people’s minds would be smoking. Altria, who controls Philip Morris International and Philip Morris USA, manufactures seven of the top 20 global tobacco products. Altria pays a very good dividend – currently at 4.2% – but I have seen it as high a 6%. In addition, the company seems pretty cheap against the market with a low P/E ratio. The high dividend yield is the premium that investors seem to expect as a result of investing in a risky stock that either through government regulation or huge lawsuit settlements can quickly alter the course of the company.
I must admit, this nice dividend payment would be a great addition to my portfolio and my $300,000 goal. I also believe that the company will do well into the future. They have been sued many times for billions of dollars and are still able to make shareowners happy. However, each time I think about buying it, a shred of guilt emerges inside of me that has me questioning whether I want to invest in a company that knowingly manufactures an addictive product that has been linked to a high number of deaths. In addition, I think about all the young kids I see smoking and it upsets me that they seem to think it is ‘cool’ to light up.
As a result of all this thinking I always end up not making a purchase. I just can’t bring myself to do it. Even through all the numbers look stable and the payout is wonderful, I stay away. It amazes me too, because I try to keep my emotions out of my investing as it has burned me before.
Again, I am not suggesting that you should not own ‘sin’ stocks. In fact, if all the analysis looked good, I probably would buy a liquor stock or a gambling stock. You may think differently. Just be sure you are comfortable with your decision on an emotional level. It won’t be fun owning a stock that makes you feel guilty!
P.S. I ran across a mutual fund that invests in what they call ‘vice’ stocks. It is called the Vice Fund and is run by Mutual.com. Interesting stuff.