Best Tobacco Stocks & Companies in 2022 | The Motley Fool (2023)

The tobacco industry may be reviled by some, but it has been a big winner for investors for much of its history. Throughout the 20th century, tobacco stocks were among the best performers, benefiting from an addictive, highly profitable, recession-proof product, plus a reputation for offering generous dividend yields to investors.

In fact, according to Wharton professor Jeremy Siegel, Altria Group (NYSE:MO), domestic maker of the Marlboro brand, was the best-performing stock on the market from 1968 to 2017 when including reinvested dividends. The cigarette maker's annualized average return was 20% during that time.

Best Tobacco Stocks & Companies in 2022 | The Motley Fool (1)

Did You Know...

The tobacco industry produced some of the 20th century's best performing stocks.

Industry overview

Today, however, tobacco companies face a new set of challenges. Smoking rates have steadily declined around the world, especially in the U.S., due to health concerns and increasing regulations. As a result, the industry has sought to pivot to next-generation products such as e-cigarettes and vaporizers, which circumvent some drawbacks of smokable cigarettes like unwanted odor and are perceived by some as better for your health. Some companies have looked beyond tobacco, partnering with cannabis businesses to capture the potential growth in an industry that bears many similarities to tobacco.

(Video) “Investing In Tobacco Stock” - High Dividend Yield Investing In Tobacco Stock. (Dividend Income)

Tobacco stocks come with a number of risks, including increased regulation and declining smoking rates. Revenue and profit growth have been slow across the industry, but these stocks still appeal to investors because their profits and dividends have been so reliable, and profit margins are still strong. Investors are hopeful that next-generation products will eventually catalyze stronger growth.

A wave of consolidation in the industry has left just three major players in tobacco: Altria, Philip Morris International (NYSE:PM), and British American Tobacco (NYSE:BTI). With few competitors, these companies have been able to raise prices to generate more profits, even as cigarette sales volumes have fallen. After the big three, there are some smaller stocks investors may want to consider, including Imperial Brands (OTC:IMBBY) and Vector Group (NYSE:VGR).

Most of the discussion around tobacco stocks focuses on traditional cigarettes and next-generation products, but it's worth noting that these tobacco companies also sell smokeless products such as chewing tobacco, as well as cigars, pipe tobacco, and accessories like rolling papers.

The COVID-19 pandemic has had an impact on the industry, forcing plant shutdowns and slowdowns, and it even affected duty-free sales for Philip Morris. Altria's 9.5% stake in Anheuser-Busch InBev (NYSE:BUD) gave it additional exposure to the crisis; alcohol contracted significantly when bars and restaurants around the world closed. Still, as part of the consumer staples sector, the tobacco industry won't suffer any lasting scars from the pandemic. Stock prices for tobacco companies have mostly recovered since their sharp declines at the beginning of the pandemic.

Keep reading to learn more about some of the top stocks in tobacco.

Top tobacco stocks

CompanySells smoke and smoke-free nicotine products?Notable subsidiary brands
Altria Group (NYSE:MO)Yes Marlboro
Philip Morris International (NYSE:PM)YesVirginia Slims
British American Tobacco (NYSE:BTI)YesCamel

Altria Group

The domestic manufacturer of Marlboro, Parliament, and Virginia Slims split from Philip Morris International in 2008, but it still owns Philip Morris USA, the subsidiary that oversees Altria Group's cigarette brands.

Almost all of Altria's sales come from the United States, where smoking rates have steadily declined over the past generation. According to the federal Centers for Disease Control and Prevention, the percentage of U.S. adults who smoke tobacco fell from 21% in 2005 to 14% in 2018. Not surprisingly, Altria's cigarette sales volumes have slipped, too. In 2021, its cigarette sales volume declined by 7.5% to 93.8 billion. In the first quarter of 2022, cigarette sales continued to decline, falling 6.3% from the first quarter of 2021 to 20.6 billion.

The long-term decline in tobacco smoking explains why Altria has taken steps to diversify away from traditional cigarettes, most notably taking a 35% stake in e-cigarette manufacturer Juul Labs and a 45% stake in Canadian cannabis grower Cronos Group (NASDAQ:CRON).

(Video) BRITISH American Tobacco | Tobacco Company | UK Dividend Stock

However, those investments haven't played out as investors hoped. In December 2018, Altria paid $12.8 billion for partial ownership of Juul, but after regulators forced Juul to stop making most of its flavored cartridges and questioned its marketing tactics, the e-cigarette company's valuation significantly fell. Altria has taken three writedowns on its Juul investment, and, as of September 2020, the stake was valued at just $1.6 billion.

In June 2022, the FDA said it would ban Juul in the U.S., although a lawsuit kept the ban from being immediately enforced. Juul has also faced a difficult regulatory environment in international markets and pulled out of five European countries in 2020.

The same month that Altria took a stake in Juul, it acquired 45% of Cronos Group for $1.8 billion and made the company its exclusive partner for cannabis. However, as of July 2022, the value of its stake was down by more than 75%.

Despite these headwinds, Altria Group remains a dividend powerhouse. It has raised its dividend 56 times in the past 52 years, effectively making it a Dividend Aristocrat (an unofficial status because of its spinoff history). Management has set a target payout ratio of 80% of earnings per share, knowing that its dividend is the main reason that shareholders own the stock. As of July 2022, its dividend yield was an attractive 8.6%.

Best Tobacco Stocks & Companies in 2022 | The Motley Fool (2)

Image source: Getty Images

Philip Morris International

While Altria has looked outside of the company to diversify and cushion itself from the decline of cigarette sales, Philip Morris is pursuing an in-house strategy. The company -- which sells many of the same brands that Altria does except outside of the U.S. -- has pinned its hopes on heat-not-burn (HNB) tobacco products. Its primary offerings in this category are the devices and cartridges sold under its IQOS (widely believed to be an acronym for “I Quit Original Smoking”) brand.

While the HNB process is similar to the process used by vaporizers and e-cigarettes, devices such as the IQOS use tobacco rather than the liquid made for vaporizers. By staying focused on tobacco, Philip Morris is taking advantage of the same supply chain for IQOS that it does for traditional cigarettes while also enjoying attractive profit margins for IQOS cartridge sales. The company claims that HNB devices are safer than regular cigarettes because they don’t burn the tobacco; however, the science is still being debated, and the FDA has not concluded that HNB devices are safer than cigarettes. The strategy does seem to be successful since almost one-third of the company’s revenue now comes from smoke-free products, and IQOS is gaining market share in countries where it’s available.

(Video) Top Dividend King Stocks | Highest Dividend Stocks with 50+ Years of Growth

Considering what happened with Juul, the IQOS brand runs a similar risk of regulatory crackdown internationally and in the U.S., where Philip Morris has partnered with Altria to sell the product line.

Like Altria, Philip Morris saw a decline in its cigarette sales volume in 2021, by about 0.6%. But its sales volume of heated tobacco units (HTUs) rose 24.8% in that same year, indicating that devices such as the IQOS have strong growth potential. In the first quarter of 2022, the company's cigarette sales volumes increased 1.9% due to a post-Covid recovery in some markets while HTU sales increased 14.2%. Philip Morris finished the first quarter of 2022 with 17.9 million IQOS users. Sales of HTUs are still much smaller than sales of traditional cigarettes, so it’s likely that the IQOS brand still has plenty of runway.

As a dividend stock, Philip Morris does not disappoint. Since its split from Altria in 2008, the company has raised its dividend every year, and its dividend had increased by 172% as of July 2022. The stock also offers a healthy dividend yield of 5.1% of the share price. If its history as part of Altria were included, it would qualify as another Dividend Aristocrat.

British American Tobacco

British American Tobacco (BAT) has become a titan of the industry as well, fueled by its $49 billion acquisition of Reynolds American in 2017. Today, the company owns a range of popular cigarette brands, including Camel, Newport, Dunhill, Natural American Spirit, and Lucky Strike, as well as next-gen products such as Vuse for vaporizing and glo for heat-not-burn smoking.

Like other tobacco companies, BAT is focused on substantially transitioning to next-gen products. In 2021, the company saw a 0.1% decline in its cigarette sales volume, although its sales volume of tobacco-heated products rose by 79%. Sales from new categories were about $2.6 billion, but the vast majority of its revenue still comes from cigarettes. The company is targeting 5 billion pounds (nearly $6 billion at current exchange rates) in income from next-gen products by 2025.

The advantage of investing in British American Tobacco over Altria and Philip Morris is that it provides exposure to the tobacco sector worldwide rather than in just the U.S. or just internationally. The company also sells a wide range of products, including cigarettes, vaporizers, chewing tobacco, and heated tobacco. Buying shares of BAT is the easiest way to gain portfolio exposure to the whole tobacco industry via just one stock.

British American also pays a generous dividend yield of 6.8%. Its high operating profit margin, which topped 40% in 2021, helps to ensure the dependability of the quarterly payout.

Related topics

Agriculture stocksAgribusiness is big business. These companies are its leaders.
Marijuana stocksThe continued legalization of marijuana means growth for companies in this sector.
Consumer StaplesNo matter what the economy, we always need these products.
Stock Market SectorsThe larger stock market is made up of multiple sectors you may want to invest in.
(Video) How to Find Small Stocks to Invest in for BIGGER Returns

The tobacco industry is evolving

Tobacco companies all face the same conundrum these days. Although selling traditional cigarettes is highly profitable, the business is in decline and is expected to keep declining. Tobacco companies need to find new ways to grow and diversify their businesses.

Investors may want to consider investing in a basket of tobacco stocks to gain exposure to different growth strategies and cut down on risk. While income investors can still count on tobacco companies to deliver dividends, the path to growth in the industry is uncertain.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Anheuser-Busch InBev NV, British American Tobacco, and Philip Morris International and recommends the following options: long January 2024 $40 calls on British American Tobacco and short January 2024 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.

FAQs

What is the best tobacco stock to buy? ›

2022 Tobacco Stocks List | The 6 Best Now, Ranked In Order
  • Tobacco Stock #5: Philip Morris International (PM)
  • Tobacco Stock #4: Imperial Brands plc (IMBBY)
  • Tobacco Stock #3: Altria Group (MO)
  • Tobacco Stock #2: British American Tobacco (BTI)
  • Tobacco Stock #1: Vector Group (VGR)
  • Final Thoughts.
  • Further Reading.
26 Aug 2022

Who are the big 3 tobacco companies? ›

A wave of consolidation in the industry has left just three major players in tobacco: Altria, Philip Morris International (NYSE:PM), and British American Tobacco (NYSE:BTI).

Who is the biggest tobacco company in the world? ›

The largest tobacco company in the world is the China National Tobacco Corporation, with a revenue of $273 billion. Roughly 250 billion cigarettes are bought in the United States each year. The global tobacco market is projected to grow at a CAGR of 2.2% through 2028.

Who is the largest cigarette manufacturer? ›

Leading tobacco companies worldwide in 2021, based on market value (in billion U.S. dollars)
CharacteristicMarket value in billion U.S. dollars
Philip Morris International159.2
Altria Group100.7
British American Tobacco97.5
ITC42.1
3 more rows
18 Jul 2022

Does Warren Buffett own tobacco stocks? ›

I'm wealthy enough that I don't need to own a tobacco company and deal with the consequences of public ownership. So, to me, the reason Buffett stopped investing in tobacco companies has more to do with reputation risks than the economics of the industry.

Is Philip Morris a good stock to buy? ›

Philip Morris' 2022 Year-to-date Stock Price Chart

My view is that PM's stock has outperformed the S&P 500 in the first seven months of the year, because the company's financial performance is very likely to be resilient thanks to the unique characteristics of the tobacco industry.

Who has the best tobacco in the world? ›

The Top 10 Tobacco Regions
  • Indonesia. ...
  • Mexico. ...
  • Nicaragua. ...
  • Cameroon. ...
  • Ecuador. ...
  • Honduras. ...
  • Brazil. Tobacco from Brazil tends to be dark, rich, and smooth with a slightly smooth flavor. ...
  • Cuba. Cuban tobacco is acknowledged as some of the finest tobacco.

Which is world's number 1 cigarette? ›

Tobacco 50 2017 Ranking
20172016Name
1Marlboro
21Marlboro
35Newport
46Winston
21 more rows

Are tobacco stocks recession proof? ›

Tobacco stocks typically have had highdividend yields, frequently well above 5%. They routinely offer dividend yields that far exceed the average yield of the broader stock market.
...
3 Tobacco Stocks for Recession-Proof Dividends.
MOAltria Group$44.90
PMPhilip Morris International$94.62
UVVUniversal Corporation$49.48
7 Sept 2022

Who is the biggest distributor of tobacco? ›

Big Tobacco is a name used to refer to the largest companies in the tobacco industry. According to the World Medical Journal, the five largest tobacco companies are: Philip Morris International, British American Tobacco, Imperial Brands, Japan Tobacco International, and China National Tobacco Company.

What is the second largest tobacco company? ›

Largest tobacco and cigarette companies by market cap
#NameC.
1Philip Morris 1PM🇺🇸
2British American Tobacco 2BTI🇬🇧
3Altria Group 3MO🇺🇸
4ITC 4ITC.NS🇮🇳
15 more rows

What is the largest tobacco company in the US? ›

Reynolds' cigarette brands constitute about one third of cigarette sales in the United States. The company offers products in all segments of the market and makes many of the nation's best-selling cigarette brands, including three of the nation's best-selling brands: Newport, Camel and Pall Mall.

Which race smokes the most? ›

American Indians and Alaska Natives have the highest smoking rate of any racial or ethnic group. A recent study also found American Indian and Alaska Native men and women have a higher percentage of smoking-related deaths from heart disease and stroke than white men and women.

Which country smoke the most? ›

Here are the 10 countries with the highest smoking rates:
  • Nauru - 52.10%
  • Kiribati - 52.00%
  • Tuvalu - 48.70%
  • Myanmar - 45.50%
  • Chile - 44.70%
  • Lebanon - 42.60%
  • Serbia - 40.60%
  • Bangladesh - 39.10%

Who are the top five tobacco cigarette companies in the United States? ›

Some of the major companies operating in the market are
  • Philip Morris USA, Inc. (Altria Group, Inc.)
  • Reynolds American Inc.
  • ITG Brands, LLC.
  • Liggett Vector Brands LLC.
  • Swedish Match USA, Inc.
  • Scandinavian Tobacco Group US Holding, Inc.
  • UNIVERSAL CORPORATION.
  • TURNING POINT BRANDS, INC.
8 Feb 2022

What was Warren Buffett's best investment? ›

Warren Buffett's and Berkshire Hathaway's top investments
StockShares ownedValue
Apple (AAPL)894,802,319$122.3 billion
Bank of America (BAC)1,010,100,606$31.4 billion
Coca-Cola (KO)400,000,000$25.2 billion
Chevron (CVX)161,440,149$23.4 billion
6 more rows
7 Sept 2022

Is tobacco a defensive stock? ›

"Sin stocks" like tobacco giant Altria (MO) are some of the best defensive investments you'll find, as consumers hit hard by any downturn tend to rely on them to get through the tough times.

Is British American tobacco a good dividend stock? ›

British American Tobacco PLC (ADR)'s Dividend History

Its average dividend yield over the past five years is 4.8%, and its compound annual dividend per share growth rate over the last five years is 4.2%. You can compare these percentages to current figures and against sector and industry peers.

Which is the better stock Altria or Philip Morris? ›

If you're looking for the total package, where both dividends and share price are important to you, Philip Morris International has a slight edge.

Is PM a Buy Sell or Hold? ›

Out of 5 analysts, 2 (40%) are recommending PM as a Strong Buy, 0 (0%) are recommending PM as a Buy, 3 (60%) are recommending PM as a Hold, 0 (0%) are recommending PM as a Sell, and 0 (0%) are recommending PM as a Strong Sell.

Why is Altria a good stock? ›

The case for Altria as a value stock

It offers a 9% dividend yield, making it one of the top-yielding large-cap stocks on the market. The company's track record of dividend hikes and growing profits should also give investors confidence that its dividend is well funded.

Do tobacco companies have stocks? ›

Tobacco stocks as a group have outperformed the broader market. The benchmark MSCI ACWI Tobacco Index has posted a 1-year trailing total return of -1.5% compared with the Russell 1000's total return of -13.1%. These market performance numbers and all statistics in the tables below are as of Sept. 15, 2022.

Is British American Tobacco a good dividend stock? ›

British American Tobacco PLC (ADR)'s Dividend History

Its average dividend yield over the past five years is 4.8%, and its compound annual dividend per share growth rate over the last five years is 4.2%. You can compare these percentages to current figures and against sector and industry peers.

Are tobacco stocks recession proof? ›

Tobacco stocks typically have had highdividend yields, frequently well above 5%. They routinely offer dividend yields that far exceed the average yield of the broader stock market.
...
3 Tobacco Stocks for Recession-Proof Dividends.
MOAltria Group$44.90
PMPhilip Morris International$94.62
UVVUniversal Corporation$49.48
7 Sept 2022

Why are tobacco stocks going up? ›

Why the turnaround? Tobacco firms, peddling addictive wares, generate predictable cash flows. This lights up investor interest because it means juicy dividends that hedge against higher inflation.

Is tobacco a defensive stock? ›

"Sin stocks" like tobacco giant Altria (MO) are some of the best defensive investments you'll find, as consumers hit hard by any downturn tend to rely on them to get through the tough times.

Which stock has the highest dividend? ›

Comparison Results
NamePriceDividend Yield
T AT&T$15.3110.64%
XRX Xerox$14.736.78%
IBM International Business Machines$121.525.48%
CVX Chevron$161.313.50%
5 more rows

Why do tobacco companies pay such high dividends? ›

High margins, strong pricing power, recession-resistant demand, and a slow pace of industry change historically enabled tobacco companies to pay out the bulk of their earnings as dividends.

Is British American Tobacco a good long term investment? ›

Valuation metrics show that British American Tobacco p.l.c. may be undervalued. Its Value Score of B indicates it would be a good pick for value investors. The financial health and growth prospects of BTI, demonstrate its potential to outperform the market. It currently has a Growth Score of D.

How do I invest in British American Tobacco? ›

How to buy shares in British American Tobacco
  1. Compare share trading platforms. Use our comparison table to help you find a platform that fits you.
  2. Open your brokerage account. Complete an application with your details.
  3. Confirm your payment details. ...
  4. Research the stock. ...
  5. Purchase now or later. ...
  6. Check in on your investment.

How do I sell British American Tobacco shares? ›

How do I buy or sell BAT shares? Some high street banks provide facilities for buying and selling shares or you can ccontact a stockbroker. Computershare Investor Services PLC ('Computershare'), who are Registrars for BAT, offer both a telephone and an internet share dealing service.

Is Imperial brands a good stock to buy? ›

Imperial Brands has received a consensus rating of Buy. The company's average rating score is 2.80, and is based on 4 buy ratings, 1 hold rating, and no sell ratings.

What do Imperial brands do? ›

We have a leading range of other tobacco products and accessories including fine cut tobacco, rolling papers, cigars, and traditional oral tobacco offerings.

What is the future of tobacco? ›

If current trends continue, by 2030 tobacco will kill more than 8 million people worldwide each year, with 80% of these premature deaths among people living in low- and middle-income countries.

Why invest in tobacco stocks? ›

Historically, the outstanding performance of tobacco stocks has brought strong returns and generous dividends. Looking forward, the addictive nature of the product and attractive market opportunities, particularly in emerging markets, points towards a continuing solid return on investment for tobacco stocks.

Why are tobacco stocks going down? ›

Altria (MO -0.40%) is tumbling after an analyst downgraded the U.S. tobacco giant, saying that inflation and competition will take a toll on the company. Shares that had been running more than 20% higher in 2022 have since fallen sharply and are now less than 3% above where they started the year.

Videos

1. CRISPR Patents Breakdown! | IN-DEPTH Review (CRSP, BEAM, NTLA, CRBU, GRPH, VERV, EDIT)
(CRISPR Investors)
2. The Best Dividend Stocks: Earning a Lifetime of Passive Income
(The Motley Fool)
3. Is Altria the Best Buy of the Next 50 Years? | 3/13/14 | The Motley Fool
(The Motley Fool)
4. Best Blue Chip Stocks to Buy Now
(The Motley Fool)
5. BECOME A DIVIDEND MILLIONAIRE With British American Tobacco! | How Much Could You Get In Dividends?
(Andrew Lavery Show - Stock Analysis Made Simple)
6. 8 Dividend Stocks To Buy And Hold Forever
(Finance Club)
Top Articles
Latest Posts
Article information

Author: Kieth Sipes

Last Updated: 01/19/2023

Views: 5848

Rating: 4.7 / 5 (47 voted)

Reviews: 94% of readers found this page helpful

Author information

Name: Kieth Sipes

Birthday: 2001-04-14

Address: Suite 492 62479 Champlin Loop, South Catrice, MS 57271

Phone: +9663362133320

Job: District Sales Analyst

Hobby: Digital arts, Dance, Ghost hunting, Worldbuilding, Kayaking, Table tennis, 3D printing

Introduction: My name is Kieth Sipes, I am a zany, rich, courageous, powerful, faithful, jolly, excited person who loves writing and wants to share my knowledge and understanding with you.