Plenty of judgment can be passed on the habit of tobacco consumption and the reality is the habit has been proven to be toxic to one's health. Fortunately, one does not have to smoke to reap the rewards of tobacco stocks. Tobacco stocks are really the epitome of "sin stocks," though the infamy their products have gained for being so unhealthy is arguably unfair compared to the likes of McDonald's (NYSE: MCD) and Coca-Cola (NYSE: KO).

Both of those companies hawk products that can lead to myriad serious health problems and both firms and their nearest rivals have certainly contributed to a serious obesity epidemic in the U.S. that costs the country billions of dollars in lost productivity every year. Still, tobacco stocks are seen as far more evil than hamburger or soda companies.

Well, tobacco stocks aren't evil for investors and an investor doesn't need to engage in the habit to profit from it. Think about tobacco stocks this way: Let someone else enjoy the habit while you enjoy your dividends and capital appreciation.

Philip Morris International (NYSE: PM):

Philip Morris International is the international version of the former Philip Morris. Altria (NYSE: MO) is the firm that's more focused on domestic tobacco markets. The returns offered by both stocks in 2012 are almost identical, but long-term investors, of which the tobacco sector attracts many, might want to consider PM over MO.

The reason for that is simple and it involves one key fundamental. PM's international exposure will be an important driver of growth in the coming years. Smoking is vilified here in the U.S., but in other countries, particularly fast-growing emerging markets, smoking is seen as a glamorous status symbol.

Japan Tobacco (PK: JAPAF):

Don't worry about the fact that Japan Tobacco trades on the pink sheets. It's actually quite common for large foreign companies to seek a U.S. listing on the pink sheets as a way of saving money. If it makes you feel any better, Nestle (PK: NSRGY), the world's largest food company, is also listed on the pinks.

The company is of course dominant in its home country, another place where smoking is far more widely accepted than it is here in the states. Japan Tobacco also recently said it would consider emerging markets acquisitions in Asia and Latin America to boost its global profile.

Vector Group (NYSE: VGR):

With a market cap of just $1.3 billion, Vector Group fits the bill as a small-cap stock, but this not a fly-by-night operation as the company has been in business for 140 years. Vector's brands are not as recognizable as Camel or Marlboro, but the shares yield almost 10%, by far the highest in the tobacco group and that's saying something because tobacco stocks are prized for their dividends.

As a small-cap, Vector Group is more volatile than say Altria or Philip Morris and in a market environment where small-caps are being punished, patient investors might want to wait on Vector Group as better pricing (and a higher yield) could materialize in the coming weeks.

Related Articles
  1. Stock Analysis

    8 Solid Utility Stocks for a Bear Market

    If you're seeking modest appreciation, generous dividend payments and resiliency, consider these eight utility stocks.
  2. Stock Analysis

    Why Phillips 66 (PSX) is a Solid Long-Term Bet

    Here's why Phillips 66 will likely remain one of the world’s largest and most profitable companies for a long time to come.
  3. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  4. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  5. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  6. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  7. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  8. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  9. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  10. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

You May Also Like

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!