My favorite line from Aziz Ansari's comedy special comes from a story about a trip to a nightclub with rapper Jay-Z. He says, "Jay-Z is drinking vodka he makes. Jay-Z signs the tab, money goes back in his own pocket." But you don't have to be Jay-Z to profit from sin stocks and enjoy profit while sipping a beer or playing blackjack at a casino.
A taste for all vices
There's more than meets the eye to some classic sin stocks. Not only do they have great brands and solid financials, some pay fat dividends to shareholders. Below are a few sin stocks that will pay you back every year for enjoying their products.
|
Stock |
Market Cap |
Price/Earnings
|
Dividend
|
|---|---|---|---|
|
Diageo |
$43.5 billion |
18.2 |
3.5% |
|
Molson Coors Brewing Company |
$8.8 billion |
11.7 |
2.4% |
|
Altria |
$50.0 billion |
14.3 |
6.3% |
|
Wynn Resorts |
$10.7 billion |
99.1 |
1.2% |
Source: Yahoo! Finance.
If sin stocks are for you, there are a few products we need to cover before deciding which is right for you. Like stretching before a track meet, let's start off slow with our good friend beer.
Yes, I'll have another
The beer business has to be one of the most rock solid businesses around. There are economies of scale, complex distribution networks and billion-dollar brands keeping the big dogs on top. Plus, it's beer, so how could that business ever go in the tank?
Molson Coors just happens to be my favorite among the big brewers but if you're looking to stay away from the big dogs, go no further than Boston Beer Company
Something stronger, please
If Johnnie Walker Scotch is more your style, then I offer you Diageo and will throw in Smirnoff, Bailey's and Crown Royal. Very few companies can offer the brand quality of Diageo and a worldwide distribution channel. Diageo also has net margins twice substantially higher than Boston Beer (15.9% to 9.2%). But Diageo's trailing net margin sits about two percentage points lower than that of rival Brown-Forman
The international liquor business also has plenty of room to grow as more consumers enter the middle class throughout the world. In 2010, Diageo's organic sales growth was 16.3% in the Middle East/North Africa segment and 15.4% in Latin America and the Caribbean. Other geographies, such as Russia and Asia do quite well too. Diageo is doing a solid job of leveraging brands in emerging markets.
Out for a smoke at the poker game
It's hard to argue with a 6.3% dividend and a 14.6 P/E ratio for most companies, but Altria isn't just any company. It makes Marlboro, Parliament, and Skoal tobacco products, just to name a few. This is not exactly an investment for everyone. Still, it looks like the most major lawsuits are behind the tobacco business, so this should be safe for now, unless people stop smoking.
If you pick the right gaming stock you can get great exposure to emerging markets and an economic recovery. Wynn Resorts has a big presence in Macau, China, which is now the world's biggest gaming market. For more exposure to Asia, Las Vegas Sands
We found out during the recession that gambling isn't the recession-proof business we once thought it was, but that leaves plenty of upside in a rebound. Both Las Vegas Sands and Wynn will be huge beneficiaries of a recovery stateside and expansion in Asia, as the economy recovers. As an added bonus, if the U.S. does get China to revalue or float its currency, it could be a boon to casino investors. As Las Vegas Sands CEO Sheldon Adelson said, "The floating of the yuan would be like a grand slam home run, World Series, Super Bowl, and N.B.A. championship game all packed in one for us."
You don't have to go home, but you can't stay here
There are plenty of opportunities in sin stocks so do your homework and find out which one is right for you. Tell us what your favorite sin stock is in the comments section below.
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Go forth and sin some more:
