Dividend-paying stocks make up a healthy component of any investment portfolio. While telecommunications companies such as Frontier Communications Corporation (NYSE:FTR) are known to support high yields, the tobacco industry is another alternative that allows investors to reap the benefits of dividends. Cigarettes may not be healthy for consumers, but they can definitely breathe new life into your portfolio.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Cigarettes
There are currently four cigarette companies in the S&P 500, and they boast an average dividend yield of nearly 5%. Interestingly, despite the negative public sentiment toward this industry, the companies' shares consistently get solid ratings from analysts; most receive "buy" ratings. Furthermore, risk averse investors should not fear that strict regulation potential will cause major uncertainty in equity returns; in fact, tobacco companies experience less volatility than most other S&P shares.

Company Dividend Yield (%)
Altria Group (NYSE:MO) 5.20
Reynolds America (NYSE:RAI) 5.60
Lorillard (NYSE:LO) 4.90
Phillip Morris International (NYSE:PM) 3.60

With an ongoing push from governments and medical interest groups to decrease the number of smokers, these firms will eventually have to either merge or adapt to the dynamic cultural environment. However, these companies still have strong fundamentals and significant dividends, providing investors with high returns and portfolio diversification.

Fundamentals
Reynolds America carries a safe beta of 0.48 and provides shareholders with a solid return on equity of 20.53%. Likewise, Altria Group shares are practically indifferent to market movements, as is reflected in their beta of 0.42. A substantial 74.33% return on equity, in addition to the stock's significant dividend yield, makes this company an ideal investment. Overall, Phillip Morris has highly effective management, with return on equity of 256.04% over the fast twelve months and sufficient cash flows to satisfy interest payments well into the future.

Bottom Line
The cigarette sector faces similar criticisms as Hershey (NYSE:HSY) and Coca-Cola (NYSE:KO) because long-term, regular users of these companies' products are subject to health risks. However, despite the taboo nature of tobacco, these stocks can add value to an investment portfolio. With high returns, low betas, minimal volatility, superior return ratios and strong dividends, tobacco stocks remain a solid investment that's not showing any signs of quitting.

SEE: Dividend Facts You May Not Know

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Professionals

    Tips for Helping Clients Though Market Corrections

    When the stock market sees a steep drop, clients are bound to get anxious. Here are some tips for talking them off the ledge.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!