Tobacco stocks plunged in November and continued to sell off in December 2018. While the favorable valuations will not prevent the market from selling the stock to lower prices, income investors cannot ignore Philip Morris (NYSE:PM) or Altria Group (NYSE:MO) any longer.
These stocks now pay a dividend that are comparable to the beat up oil stocks.
Philip Morris has a stable cigarette business. Worldwide, governments may continue to implement laws that hurt its consumption, but this is nothing new.
At a 13 times P/E and a dividend of close to 7%, markets are acting as if the business will shrink considerably in the year. This scenario is unlikely.
PM has an attractive e-cigarette initiative. Global demand for iQOS will increase over time despite it getting banned in Hong Kong. PM said it would fight the ban.
Altria is riskier than PM but offers a similar dividend yield. MO’s $12.8 billion for just 35% in Juul is expensive. The weed market is still new and unproven.
While markets expect soaring demand for cannabis, MO is investing at a $38 billion valuation in Juul. Still, strong cash flow more than covers its dividend. SimplyWall.St has a PT of $80.66. This is double its current value.
