Is This Tobacco Investment's Risk Worth the Reward?http://www.fool.com/investing/general/2014/01/08/is-this-tobacco-investments-risk-worth-the-reward.aspx Rupert Hargreaves
January 8, 2014
The tobacco sector is well known for its impressive shareholder returns, and Lorillard (NYSE: LO) offers some of the best. Indeed, according to my research, through both share buybacks and dividends Lorillard returned 8.9% of its share price to investors during 2012.
The only company that returned more was Reynolds American (NYSE: RAI), which returned 10.1% of its share price. In comparison, Philip Morris returned 8.8% and Altria Group (NYSE: MO) 7.6%. But is the risk of investing in Lorillard worth the reward?
A burning but minty issue
That being said, if we think about things logically, it is not unrealistic to suggest that if the U.S. Food and Drug Administration moves against menthol cigarettes, Lorillard will not lose all of its sales overnight. The company is likely to lose some of its sales, but it is more than likely that smokers will switch from menthol to regular cigarettes and stay with Lorillard's Newport brand. In addition, Murray Kessler, the chairman and chief executive of Lorillard, has gone on record to say
So it would appear that if the FDA were to move against menthol, Lorillard would fight to the death in court to appeal the decision.
That being said, the company is still likely to report lower sales immediately off the back of any regulation.
It not all bad
Not just Lorillard