In fire safety training, you are told to stay close to the ground if you ever need to exit a building in blazes. Smoke has a tendency to rise. Lately, so do the yields on tobacco stocks.
Stock
Yield
Altria (NYSE:MO) 6.5%UST (NYSE:UST) 5.7%R.J. Reynolds (NYSE:RJR) 10.6%
Yep, when it comes to dividends, these smokers are floating up there. Yet, attracting investors, even with these beefy yields, hasn't been easy. Naturally, we have liability issues to deal with. You could even argue that the companies are behaving like chased bank robbers, unloading some of their stash along the way, either to create a diversion or to be caught holding less in the bag.
Whether it's the "sin stock" stigma or the opinion that tobacco is an industry marked for obsolescence, these stocks don't get a whole lot of love. And cheap imported smokes and higher state excise taxes haven't helped quiet the death knell.
But rather than be the cigarette butt of the investing world, these companies are starting to fight back. Last month, Altria hiked its quarterly dividend. Again. Last week, UST reaffirmed its commitment to keep the high payouts flowing through at least 2005.
Perhaps R.J. Reynolds is the most troubled high yielder in the bunch. At least, Altria has its stake in Kraft Foods
Increasingly, these utility stock-like yields are drawing conservative income-seeking investors into risky stocks. They say there's no such thing as a free lunch. Attractive as these yields are, it's critical to know what you're buying.
If you're interested in income investments, our brand-new Motley Fool Income Investor is checking under the hood of some of the more tantalizing dividend payers in the market.
So why did Philip Morris become Altria? Do you think tobacco stocks are a bargain now or will investors get more than they bargained for? What about the smoking-related lawsuits? Will the company ever get past those? All this and more -- in the Altria discussion board. Only on Fool.com.
