Time to Quit Big Tobacco Dividends

Riding the U.S. tobacco gravy train has been one of the most reliable ways for an investor to get rich over the past century. Wharton's Jeremy Siegel reports that Altria (NYSE: MO  ) , formerly Philip Morris, was the best performing stock in the S&P 500 from 1957 to 2003. I believe him: They've been some of my best buys on CAPS.

But all good things -- or bad depending on your perspective -- must eventually draw to a close. Such is the case with U.S. tobacco stocks today. I think we are at a crossroads and it's finally time to call 'em quits.

Quit your tobacco dividend addiction
U.S. tobacco stocks have historically appealed to investors because of their dividend yields of 5% or more coupled with reliable dividend increases. But now there is reason to think those dividends are -- or soon will be -- under pressure, and simply aren't worth the risk anymore.

For the first time in the last decade, Altria's free cash flow could not cover its dividend payments last year. America's largest domestic tobacco company paid out $2.96 billion in dividends while only generating $2.6 billion in free cash flow. The gap was made up by the issuance of equity and debt.

Now, I'm sure an observant reader will point out that 2010's result was an aberration due to a one-time $945 million Internal Revenue Service payment and that Altria's continuing profitability cannot be judged by it.

I totally get that (and good for you for knowing that), but even if we add back the IRS payment, the free cash flow yield is a paltry 6.3%. That provides a dangerously thin margin to be supporting a 5.7% dividend yield. Reynolds American (NYSE: RAI  ) is in a similar pickle, supporting its own dividend yield of 5.7% with a free cash flow yield of 3.6%. Lorillard (NYSE: LO  ) has more headroom.

There are better alternatives
Besides, a 5.7% yield (what Altria and Reynolds both offer, and Lorillard 4.7%) simply doesn't cut it anymore. I can get that from safer telcos like Verizon Communications (NYSE: VZ  ) or AT&T (NYSE: T  ) , which sell their own form of addictive product. And unlike big tobacco, those two companies have ample free cash flow yields (a whopping 16.6% for Verizon and 8.1% for AT&T) to cover their dividend yields of 5.4% and 5.7%, respectively, while funding future growth.

Another alternative is junk bonds. Don't laugh. Altria, Reynolds, and Lorillard are practically junk bonds themselves, since they have a risky future, pay out most of their expected return, and have, dare I say, a finite lifetime. Junk bond ETFs like the SDPR Barclays Capital High Yield (NYSE: JNK  ) offer yields of around 8%. And they're more diversified to boot.

Last but not least, what about Coca-Cola (NYSE: KO  ) or PepsiCo (NYSE: PEP  ) ? They're trading at nearly identical free cash flow ratios as the tobacco companies (4.9% and 4.8%, respectively), which I've argued matters more than dividend yields. Why would I buy a moribund Altria or Reynolds when I can buy a Coke or Pepsi at a similar valuation? Plus you still get a roughly equal payout when you factor in share buybacks.

A picture is worth a thousand words
But there is another reason to stay away from U.S. tobacco dividends. Starting in fall 2012, tobacco companies will have to start putting horrific pictures on every cigarette carton. While I personally doubt this will have an effect on pre-existing smokers, I do think this will discourage a great many kids from taking it up. And without new customers, big tobacco and their big dividends eventually bite the dust.

The Campaign for Tobacco-Free Kids -- an interest group that lobbies against tobacco companies -- has put together an informative factsheet detailing the effectiveness of pictorial labeling requirements in the 35 countries that already have them.

More than 90% of Canadian youths report that pictorial labels make smoking seem less attractive. When a second set of pictorial labels was introduced in Thailand in 2006, 53% of smokers said it made them think "a lot" about the health risks, and 44% of smokers said they were "a lot" more likely to quit over the next month. When Brazil introduced new picture warnings, 67% of smokers said it made them want to quit. When pictorial labels were introduced in Australia, the number of smokers who called the quit line doubled.

Just Say NO
Like their products, big tobacco's stocks are just too expensive and just too dangerous. These companies pay out most everything in a dividend, retaining almost nothing for growth, and 4.7% to 5.7% just isn't a high enough return given the risk. There are better alternatives for your money.

Fool contributor Chris Baines is a value investor and doesn't own any of the stocks mentioned here. Chris's stock picks and pans have outperformed 86% of players on CAPS. The Motley Fool owns shares of Altria Group, PepsiCo, and Coca-Cola. Motley Fool newsletter services have recommended buying shares of PepsiCo, AT&T, and Coca-Cola. Motley Fool newsletter services have recommended writing puts in Lorillard and creating a diagonal call position in PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On June 27, 2011, at 3:58 PM, mm5525 wrote:

    At least Altria has a 29% stake in SABMiller, the world's second largest brewer, so that keeps it far from junk, and at least Altria is the dominant player in the USA in both tobacco venues, cigarettes as well as smokeless tobacco. Their earnings may wane, but at least they will always control the US market due to such a high barrier for any new competitor for entry into the space. So they have been virtually cemented as the most dominant player in the US.

    Despite all this, about a year and a half ago, when the FDA first took over big tobacco in the USA, I dumped all my MO which I had held a decade or more and put it all in Philip Morris International (PM) to be free of the massive strictness of the USA's regulations and lawsuits in favor of a slightly lower yield (3.93%) with a much lower payout ratio (@62% of EPS), combined with tremendous growth overseas. The Asia-Pac region GDP's will continue to rise at a very fast pace, and that will help PM as many in that region are buying cars for the first time, experiencing wealth for the first time, etc. Still, PM is not without concern as they are fighting Australia over plain-packaging restrictions, but no matter what, people are going to smoke, especially in the emerging markets. People in that part of the world love the American way of life, and the Marlboro Man is an iconic symbol.

  • Report this Comment On June 27, 2011, at 4:59 PM, shoemaker17 wrote:

    interesting article chris. what about this new snus stuff they are rolling out? i am 25 years old, and ive noticed a huge uptrend in snus. you can do it anywhere, don't need to spit. ive done it during meetings at a national lab. kids are doing it in their classes. right now the snus is cheap, they are converting new addicts as we speak, then they can jack up the prices. i was shocked when some of my nerdier, more disciplined friends offered it to me. i am betting a lot more people will be doing this in the near future.

  • Report this Comment On June 27, 2011, at 5:22 PM, mansourg54 wrote:

    The arguemennt against owning MO can be used against (MCD) high cholasterol, softdrinks sugar against (KO) and (PEP), fat against chocolate (HRSY) and cheese (KFT) and almost every industry. MO pays $3.4B per year to the states to cover health care expenses. In 10 years this will end.

    MO is a diversified company in cigarettes, smokeless tobacco, cigar, wine, beer and financial.

    Most smokers, if not all, have relatives or friends who are in their 80s and 90s and smoke all their lives without health problems and will point to them as a proof that smoking is not as harmful as the ads say.

    I own close to 100,000

  • Report this Comment On June 27, 2011, at 5:32 PM, whyaduck1128 wrote:

    If you want to be into "socially responsible investing", by all means, go ahead. However, that's not why I'm here. I am here to maximize my investment portfolio. As mansourq54 just pointed out, you can make an argument against almost any industry and company; they all do something "wrong".

    I don't smoke, have never smoked cigarettes (at least, not tobacco cigarettes), don't intend to smoke, don't date smokers, and if I had children, would forbid smoking by them. That doesn't mean I can't make some money from smoking--and I do it with a clear conscience because the company profits and my dividends are derived from voluntary behavior.

  • Report this Comment On June 27, 2011, at 5:43 PM, xetn wrote:

    Add to the above comments the fact that MO has been winning one lawsuit after another (mostly by the courts throwing out the cases).

    So, what looked like huge awards going to the plaintiffs isn't.

  • Report this Comment On June 27, 2011, at 6:04 PM, Fool wrote:

    I do appreciate the Foolish opposing viewpoint on Altria's shares. But, there's one important piece that wasn't mentioned in your article: PRICING POWER.

    The tobacco companies have got a stranglehold on smokers in that they can (and have) raise prices BY WHATEVER THEY NEED TO, to cover 1) a dividend that increases annually and/or 2) offset declines in smoking rates, possibly due to these nasty smokers' lung pictures they're going to have to start putting up.

    And consumers will pay it, and Altria will add shareholder value.

  • Report this Comment On June 27, 2011, at 6:32 PM, RLLH wrote:

    Horrific pictures on cigarette cartons? Do you really think that will deter smokers? Coming home after my fathers funeral (from lung cancer) my sisters could not wait to light up cigarettes and have a smoke. There is as much chance of people stopping smoking as there is them giving up alcohol or drugs.

  • Report this Comment On June 27, 2011, at 6:51 PM, financeguy85 wrote:

    This is a very well written article. Kudos to Chris. Although I disagree, these were compelling arguments. I think a lot of what makes people buy MO (including myself) is the difference between implied and real returns. Theoretically, you are correct, an investor should be more favorable to a higher free cash flow yield from KO. But Altria pays almost double the FCF yield as a cash dividend, and you can't pay the bills with a free cash flow yield.

  • Report this Comment On June 27, 2011, at 6:54 PM, financeguy85 wrote:

    I apologize--I meant to say Altria pays almost twice as much free cash flow yield as a cash dividend as KO. My mistake.

  • Report this Comment On June 27, 2011, at 8:12 PM, jekoslosky wrote:

    Interesting piece.

    Let's face it, cigarette makers keep their investors by maintaining high yields.

    I have to think Altria will do whatever it takes to keep that dividend attractive. But they certainly will face increasing government regulation.

    Of course, this always stirs the responsible investing pot.

    More from me on that here: http://bit.ly/kxOo0x

  • Report this Comment On June 27, 2011, at 8:24 PM, karlm1 wrote:

    RAI and LO are fighting the labeling in court. If the government wins I would expect them over time to start attacking other companies with products they don't think are healthy for us. McDonald's would be a likely target with some of those same images pictured on their burger wrappers. I hope some of these companies also lobby to defend big tobacco. own PM and not Altria but overseas pressures are going to effect PM as well over time. It will be a very sad day if this ever comes to pass for everyone.

  • Report this Comment On June 27, 2011, at 8:30 PM, cbaines2 wrote:

    Thanks for the thoughtful comments,

    financeguy85, I think you hit on the head as to why people buy cigarette stocks: "But Altria pays almost double the FCF yield as a cash dividend, and you can't pay the bills with a free cash flow yield."

    That's a common perception, but it's not entirely true. You can pay the bills with the free cash flow yield - it's called selling shares.

    When a stock goes ex-dividend (as you likely know) the share price empirically falls by the amount of the distribution. Dividends aren't free money from heaven - they come from the balance sheet - and when it leaves the balance sheet and enters your pocket the share price falls.

    Likewise, when it stays on the balance sheet it props up the value. And you can take advantage of that by selling shares.

    But alas, you (and some of the other commenters) are right that investors psychological prefer dividends. But that doesn't mean that you should, or that it's financially fattening. Some of the best bargains are stocks with big free cash flow yields that investors ignore because they don't pay dividends.

    Thanks for reading and taking the time to respond,

    Chris Baines

  • Report this Comment On June 27, 2011, at 8:43 PM, mm5525 wrote:

    Ironically, CNBC's Jim Cramer discussed the whole domestic tobacco debate in tonight's episode of Mad Money. I assume it's okay to put up the link, and if not, I apologize. He apparently agrees with me to buy PM and avoid the FDA-controlled central planners.

    http://video.cnbc.com/gallery/?video=3000030109

    That's a good point, karlm1. It would be nice for other companies such as MCD, KO, KFT, PEP, to come to Big Tobacco's assistance in fighting this intrusive attack on someone's intellectual property. It reminds me of how when the White House slammed Fox News as not a credible organization or did not give them a seat in the press corps or whatever it was, but the MSM came to Fox's aid just for the sake of freedom of the press.

  • Report this Comment On June 27, 2011, at 8:49 PM, financeguy85 wrote:

    Chris,

    Now you've lost me. I have heard your argument used before and it continues to baffle me. First, there is little sense in saying paying a dividend brings down the share price. How could you possibly say that when history shows us the best performing stocks are predominantly dividend payers?

    Again, we're debating the difference between an implied return and a real return. In order to realize a return based on price appreciation, you have to sell your shares, which then denies you the ability to earn future returns (unless you immediately buy back in). By selling, you've incurred commission costs and a taxable event if holding in a taxable account. Then you have to gamble and hope the price falls enough to make that worth it when you want to buy back in. That is not a recipe for success over the long term.

  • Report this Comment On June 27, 2011, at 9:13 PM, longertime01 wrote:

    I don't believe this. Sell all your shares, and I'm going to keep buying.

  • Report this Comment On June 27, 2011, at 9:41 PM, FatDividends wrote:

    Rich and Powerful companies always find a way to make money. This New picture campaign which i think will be overturned by the supreme court will not stop these RICH tobacco companies from getting there money. Phillip Morris ticker PM operates primarily overseas so just buy PM if your worried they are free from this regulation.

  • Report this Comment On June 28, 2011, at 12:27 AM, baldheadeddork wrote:

    Other countries have used these graphic cigarette warnings for years. Any data on how they've affected sales in those countries?

  • Report this Comment On June 28, 2011, at 1:48 AM, cbaines2 wrote:

    financeguy85,

    "Now you've lost me. I have heard your argument used before and it continues to baffle me. First, there is little sense in saying paying a dividend brings down the share price. How could you possibly say that when history shows us the best performing stocks are predominantly dividend payers?"

    I love this question, and I'm sorely tempted to write a column on it. I'll give you the short version.

    It is absolutely true that dividend payers have historically outperformed.

    It does not logically follow, however, that it was the dividend that made them outperform.

    The fact of the matter is that dividend payers tend to be high quality companies with Buffett-like characteristics. It's my contention that they outperform because they're high quality companies, not because they paid a dividend.

    To put it another, giving a bad company Altria's dividend policy won't make it perform like Altria.

    Also, the fact stock prices drop ex-dividend is well established, and empirically verified, in academic literature. They don't drop exactly 1:1 because of taxes of dividends and other frictions, but rest assured they drop enough to prevent you from getting something for nothing.

    Thanks again for reading, and more on this at a later date,

    Chris Baines

  • Report this Comment On June 28, 2011, at 1:59 AM, mikecart1 wrote:

    People can keep bashing MO all they want. MO is funding my retirement nicely and I'm only in my 20's. That is how powerful dividends + MO are. I might consider PM if MO takes a hit. Bottom line, keep tobacco in your portfolio. Even homeless people smoke and drink. In a world where people without homes would rather spend their money on a pack of cigarettes, I say own tobacco until humans change - which they won't.

  • Report this Comment On June 28, 2011, at 2:34 AM, GregLoire wrote:

    @ financeguy85,

    "In order to realize a return based on price appreciation, you have to sell your shares, which then denies you the ability to earn future returns (unless you immediately buy back in)."

    This is purely psychological, and the exact same effect exists with dividends. When a company pays out a dividend from its balance sheet, that money cannot be used by the company to generate additional returns in the future either. You would need to use that dividend payment to buy more shares in order to generate future returns.

    Assuming periodic stock splits, you could theoretically keep selling the same non-dividend-paying stock indefinitely to generate income at the same theoretical rate as dividend payments. It's true that your transaction fees would be a bit higher with the former route, but that's a pretty weak crux for an argument about market fundamentals.

  • Report this Comment On June 28, 2011, at 11:13 AM, MrsCathyGF wrote:

    Why would someone ditch a cashflow generating stock during an economic downturn ? My reaction is buy winners in as many sectors as possible, not ditch cash ! 2012 ? I heard they are already shoving more control on us.

  • Report this Comment On June 28, 2011, at 12:30 PM, iCultBasher wrote:

    Since this administration is going after "big tobacco" by mandating ugly pictures on cigarette packaging in 2012, they should be consistent.

    Let them tell their goofy leftist sidekicks in Hollywood to quit making movies with chain smokers in every scene. The failed ideologies and utter hypocrisy of these progressive cranks stinks as bad any smoke-filled tavern.

    And speaking of federal mandates, let ObamaCare's socialized medicine fiasco be depicted by the following poster:

    1. Long lines of illegal aliens outside of a broken down hospital.

    2. A jail next to the hospital that's filled with American citizens who were imprisoned because they couldn't afford to buy health insurance.

    3. Top it off with Barbra Streisand driving past in one of her gold-plated Rolls Royce convertibles. As for ugly pictures, the face of that witch is enough to stop a clock.

    The attacks on tobacco companies by progressives are yet another "redistribution of wealth" scheme to push cigarettes into a black market, at which point billionaire thieves like George Soros will be positioned to profit from.

    Obama's creepy and fanatical supporters are either too stupid to see this, or they hope to profit from it themselves. It's a good bet that many are heavily invested in tobacco stocks. Socialism works best when its forced onto everyone else.

  • Report this Comment On June 28, 2011, at 12:58 PM, financeguy85 wrote:

    Chris,

    You are essentially arguing that free cash flow is better served being transferred to the balance sheet. To do what? Balance sheet cash is often used for two things: share buybacks (to enrich employees from their options) and acquisitions (which are more often than not poor decisions). Or, it will sit on the balance sheet and using your rationale, hope that the market values it properly by adjusting the share price upwards, which it usually doesn't. You don't see the companies with huge cash balances being rewarded with higher multiples. Quite the opposite, in fact.

    How has huge cash balances served shareholders recently? Are all the Microsoft and Cisco shareholders out there (myself included) singing the praises of huge cash balances? No. What's that $8 billion Skype acquisition doing for us MSFT owners? A bump in the share price? No. Again, quite the opposite.

    Again, I have to reiterate my point that if I have to decide between a higher cash flow yield or twice the dividend yield, I'm taking the latter every time. If there's cash left over, I'll take my share in cash thank you very much. A bird in the hand is worth two in the bush, as they say.

    Chris you really should read some Jeremy Siegel. Or at least schedule a lunch meeting with a couple of your Fool colleagues who will attest to the value of dividends as both an automatic compounding mechanism and a spectacular way to enhance total return.

  • Report this Comment On June 28, 2011, at 1:10 PM, sfmonkeyc wrote:

    This is a thoughtful article and it makes many good points.

    Another factor to consider is the growing movement to legalize marijuana. What companies are best positioned to take advantage of pot legalization: tobacco companies and big pharma. How hard is it to switch from growing tabacco and rolling cigarettes into growing pot and rolling joints.

    While I expect cigarette smoking to continue to decline, I could see Altria moving into other markets that can generate many billions in sales.

    Reps. Ron Paul and Barney Frank are already proposing legislation to legalize marijuana at the federal level and put regulation in the hands of the states. It's a way off, but it's coming.

  • Report this Comment On June 28, 2011, at 2:00 PM, gimponthego wrote:

    Are there any figures on the amount of money Hollywood receives from Big Tobacco. If this has been addressed already, please excuse the post..I'm rushing today! This has been on my mind for some time. In 95% (my guess) of new and old flicks..everyone is smoking!

    I'm a vidiot and watch a lot of "On Demand", etc. It would be interesting, to me anyway, to know what B.T. is shelling out for these stars to smoke like chimneys! Thanks Johnny

  • Report this Comment On June 28, 2011, at 3:28 PM, GregLoire wrote:

    @ iCultBasher,

    "2. A jail next to the hospital that's filled with American citizens who were imprisoned because they couldn't afford to buy health insurance."

    Quit spreading this repeatedly debunked garbage. http://www.politifact.com/virginia/statements/2010/dec/20/bo...

  • Report this Comment On June 28, 2011, at 4:11 PM, SpeechRec wrote:

    When marijuana becomes legal as a recreation, won't MO cut out a nice big slice of that pie?

  • Report this Comment On June 28, 2011, at 4:21 PM, SpeechRec wrote:

    And they can put pics on marijuana cig boxes of people laughing at stupid stuff, eating too much pizza & not going to work.

  • Report this Comment On June 28, 2011, at 9:39 PM, iCultBasher wrote:

    RE: GregLoire and spreading "debunked garbage"

    You're another mouthpiece of propaganda for Obamacare, so quit spreading YOUR garbage.

    Politifact.com is a website operated by the St. Peterberg Times, which is staffed by Obamanista sympathizers and other far left radicals. It's no wonder they would do anything to prop up his socialized medicine takeover.

    Now, here are the facts you need to deal with:

    1. The "individual mandate" requires every citizen to buy health insurance; this is brazenly unconstitutional. Also, where are all the anti-free market progressives on this one?

    2. Obamacare budgets 16,000 new IRS agents to be hired for "enforcing" this mandate. Many were already hired earlier this year.

    3. If you think the IRS will let anyone slide on this new obligation without prosecution, you're in more denial than Michael Jackson's fans were over his queer pedophilia.

    4. Tax court is where the IRS resolves its disputes with people. It's a rigged game and the deck is stacked against the taxpayer.

    5. Those who lose cases against the IRS always have goods and property confiscated. People with few assets end up in jail.

    It's pure lunacy to put every hospital in this country under control of the the same outfit that runs Post Office.

    If these facts offend you, then use the old leftist double-think line : "Socialism is awesome, dude! Just smoke this and forget the details."

  • Report this Comment On June 29, 2011, at 10:46 AM, ikkyu2 wrote:

    Tobacco company psychiatrists design and market cigarettes to appeal to every person's sublimated death wish. Photographs of illness and abuse on the packs will strengthen this and will improve tobacco sales to new customers. The tobacco companies know this.

  • Report this Comment On June 29, 2011, at 4:18 PM, ByrneShill wrote:

    1-In canada, the ugly pictures on cigarette packs appeared 10-15 years ago (not sure, not a smoker myself). It didn't keep anyone I know from beginning to smoke. I was a teen back then, and I remember that TV and videogames used to be a lot more gory than any picture on any pack. As for the health thing, let's be honest: most people don't really start thinking about their health before their 20s. Except for the chronically sick kids (which usually can't smoke anyway). So, overall, those pictures have had absolutely no impact imho. Restricting tobacco in public places is what has done the best job to keep tobacco in check.

    2-There is a possible untapped market for growth: pot. If pot is legalized, even if it was just in California, who do you think is gonna manufacture the thing and sell it? Tobacco companies already have the infrastructure, financing, distribution channels, etc... Legalization of pot is like getting a free lotery ticket with your shares.

    3-Overall, I think the %age of smokers will stay roughly what it is today. With population growth and inflation, the revenue growth of tobacco should roughly match GDP growth.

  • Report this Comment On June 30, 2011, at 10:18 PM, BxBruce007 wrote:

    @iCultBasher damn interesting article and lots of thoughtful responses. Why do people like you have to come along and spread their ideological BS? This is a finance site. Save the political crap for Fox.

  • Report this Comment On June 30, 2011, at 11:56 PM, 7numismatics7 wrote:

    I Don't agree with any element of this premise.

    The most erroneous aspect of this bit of conjecture is the implication that LO and RAI are "in the same boat" as MO. I think it is pretty clear to most who follow the US Tobacco scene that anything weighing on LO and RAI and MO, in the long run will probably end up helping MO. The competitive landscape of US tobacco

    Oh yeah... and the anti-tobacco zealotry will run its course at some point and the cultural tide will turn. is really the key to these companies.

  • Report this Comment On June 30, 2011, at 11:59 PM, 7numismatics7 wrote:

    ... The last sentence of the 1st paragraph was supposed to say "The competitive landscape of US tobacco is the key to understanding these companies; more so than in other sectors."

  • Report this Comment On July 01, 2011, at 12:49 PM, Happymspage wrote:

    I just bought 400 shares of Altera (MO) about a month ago. I remember Altera being listed among the "Best Stocks for the next 100 years'

    On this list were Altera ,MO;CocaCola, KO;

    Procter & Gamble, McDonalds, A.T. &T (T),

    Buckeye Pipeline , J&J or JNJ, Union Pacific ,UNP

    and I added Smuckers to than list as we have had it for years and so did my Mom. They made second place in Barrons annual list of up and coming stocks,and they have raised the dividend several timess since we have owned it ,and we understand their business.

    Richard

  • Report this Comment On July 01, 2011, at 5:48 PM, ScottPletcher wrote:

    >> I am here to maximize my investment portfolio. As mansourq54 just pointed out, you can make an argument against almost any industry and company; they all do something "wrong". <<

    They don't all kill millions of people, though.

    I suppose one could have made money investing in the companies that sold crematoria ovens to the Nazis too ... as long you don't mind killing to make money.

  • Report this Comment On July 02, 2011, at 12:31 AM, 7numismatics7 wrote:

    ScottPletcher

    Yeah, because a company that sells a product which may have negative effects on the consumer's health over long periods of time is perfectly analogous to the organized extermination of an ethnic population.

    What a surreal mindset!

  • Report this Comment On July 02, 2011, at 1:01 AM, mike2153 wrote:

    I have some mixed emotions about the recent tobacco packaging regulations. Compelling the tobacco companies to put revolting imagery, in addition to written warnings, on their packages just doesn't seem to fit with my concept of free speech. That being said, and speaking as a former smoker of thirty-plus years, I would prefer, and completely support, the outlawing of tobacco products. There's something about the emotional impact of the images, as a opposed to the factual information required to be displayed, that somehow doesn't fit in with my sense of right and wrong. Is propaganda in a good cause a good thing?

  • Report this Comment On July 02, 2011, at 1:14 AM, skypilot2005 wrote:

    These “one sided articles” do not serve investors. The Fool needs to have an Opinion Section to place these in. So, serious investors can “flip” by them.

    I don’t own any tobacco stocks. I do not intend to buy any. But, I just looked at the quote for MO:

    13.5 PE

    6.9% dividend

    One of their brands Marlboro, is one of the strongest brands of any product. Check out the annual revenue from just that brand.

    Advertising restrictions just lower their costs.

    They can sell them without the name on the package, just the red and white pack like it is. Many consumers refer to them as “A pack of Reds”.

    What about PM?

    http://www.fool.com/investing/general/2011/07/01/a-foolish-v...

    http://www.fool.com/investing/general/2011/06/29/will-new-pa...

    These “one sided articles” do not serve investors. The Fool needs to have an Opinion Section to place these. So, serious investors can “flip” by them. I think it may be just plain laziness.

    Come on.

    Sky Pilot

  • Report this Comment On July 02, 2011, at 1:18 AM, skypilot2005 wrote:

    June 29, 2011, at 10:46 AM, ikkyu2 wrote:

    "Tobacco company psychiatrists design and market cigarettes to appeal to every person's sublimated death wish. Photographs of illness and abuse on the packs will strengthen this and will improve tobacco sales to new customers. The tobacco companies know this."

    Please provide your source. I don't believe this to be true.

    Sky Pilot

  • Report this Comment On July 02, 2011, at 1:22 AM, skypilot2005 wrote:

    June 30, 2011, at 11:56 PM, 7numismatics7 wrote:

    "I think it is pretty clear to most who follow the US Tobacco scene that anything weighing on LO and RAI and MO, in the long run will probably end up helping MO. The competitive landscape of US tobacco"

    True. Advertising restrictions will help MO maintain their market share.

    Sky Pilot

  • Report this Comment On July 02, 2011, at 2:21 AM, TheDumbMoney wrote:

    @ikkyu2, yours is an allstar comment.

    I think you are absolutely right. Cigarettes appeal to people's death wishes. Almost everyone has some darkness, some depression, which does not express itself as a suicidal thought, but which expresses itself in an inability to refrain from doing things that cause long-term harm. We live for the moment. It's the kind of thing causes Ryan Dunn to get in a Porsche shtitfaced and drive 130mph. And it's the kind of thing that prompts the other guy to get in with him. Do central planners really think these pictures will do permanent harm? Not a chance. Woeful simplification of the human spirit.

    The only real threat cigs face is Australia's no brand label rule. That would likely not fly in America due to the first amendment, even though commercial speech restrictions only are subject to intermediate scrutiny. That means Feds can get away with keeping the Marlboro Man off TV, but they can never, ever ban the Marlboro brand from being stated on a package of cigarettes. Australia must not have quite analogous protections of commercial speech.

    Substantively, I agree MO is skating near the edge when it comes to support for its dividend payment.

  • Report this Comment On July 02, 2011, at 9:24 AM, skypilot2005 wrote:

    On July 02, 2011, at 2:21 AM, dumberthanafool wrote:

    "@ikkyu2, yours is an allstar comment."

    re: "Tobacco company psychiatrists design and market cigarettes to appeal to every person's sublimated death wish."

    I would like the name of ONE of these psychiatrists and the tobacco company they work for.

    Fair enough?

    Sky Pilot

  • Report this Comment On July 03, 2011, at 3:07 PM, longertime01 wrote:

    The alternatives that the author provided is laughable. How can you compare T or VZ to one of the greatest stocks of all time? From 1995 to 2011, the stock price for T is about the same. In my view, the author has not much credit. I would completely disregard with his reasoning. I don't like his analysis because it's childish and so incomplete and so one sided. The points are not strong enough and detail enough, not even motioning the earnings of the company. The title is a good one, it gets your attention. The substance,... not substance at all!

  • Report this Comment On July 03, 2011, at 3:20 PM, longertime01 wrote:

    I believe there is absolutely no alternatives to this company. But other weaker alternatives that I like may be

    APA

    CAT

    YUM

    MCD

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