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Tobacco stocks are labeled as a dying business model - but is this true?
Let's "clear the smoke" on this controversial sector
-A Thread-
Tobacco stocks are labeled as a dying business model - but is this true?
Let's "clear the smoke" on this controversial sector
-A Thread-
1.
First, let's acknowledge the fact that smoking rates are declining.
Smoking prevalence has been declining in the US for many decades.
This is due to people dying from smoking over the years, and fewer people
picking up the habit to replace them.
First, let's acknowledge the fact that smoking rates are declining.
Smoking prevalence has been declining in the US for many decades.
This is due to people dying from smoking over the years, and fewer people
picking up the habit to replace them.
2.
Now while the RATE of smoking has steadily declined,
The population itself has grown to partially offset this.
In 1980, the US population was approximately 226 million.
Today, it's closer to 328 million.
Now while the RATE of smoking has steadily declined,
The population itself has grown to partially offset this.
In 1980, the US population was approximately 226 million.
Today, it's closer to 328 million.
3.
And across the world?
The number of smokers is actually growing due to emerging markets picking up the habit.
Now despite the US and developed markets seeing a decline in cigarette use,
The industry is seeing sales continue to grow. Why?
And across the world?
The number of smokers is actually growing due to emerging markets picking up the habit.
Now despite the US and developed markets seeing a decline in cigarette use,
The industry is seeing sales continue to grow. Why?
4.
First, you have the the remarkably inelastic nature of cigarettes.
In other words, tobacco companies can continue to raise the prices they charge
And smokers will continue to pay it because quitting the habit is difficult.
First, you have the the remarkably inelastic nature of cigarettes.
In other words, tobacco companies can continue to raise the prices they charge
And smokers will continue to pay it because quitting the habit is difficult.
5.
Despite smoking rates falling in the US since 1980
Population growth combined with a price increase of 5%-6% per year
Has enabled tobacco companies to steadily grow revenues like clockwork.
Despite smoking rates falling in the US since 1980
Population growth combined with a price increase of 5%-6% per year
Has enabled tobacco companies to steadily grow revenues like clockwork.
6.
Second, the tobacco industry is rapidly evolving into a "nicotine" industry
With a push on reduced risk products to deliver nicotine:
-E-cigarettes
-Oral tobacco
-Heat-not-burn tobacco
-Nicotine pouches
Second, the tobacco industry is rapidly evolving into a "nicotine" industry
With a push on reduced risk products to deliver nicotine:
-E-cigarettes
-Oral tobacco
-Heat-not-burn tobacco
-Nicotine pouches
7.
Big tobacco owns a lot of these, and are moving to box out those they don't own.
So while cigarettes will someday fade out of relevance,
It seems fair to say that a long runway remains still
And alternative nicotine products are being accepted into society.
Big tobacco owns a lot of these, and are moving to box out those they don't own.
So while cigarettes will someday fade out of relevance,
It seems fair to say that a long runway remains still
And alternative nicotine products are being accepted into society.
8.
So who makes up "Big Tobacco"?
Let's meet our contestants:
-Imperial Brands $IMBBY
-British American Tobacco $BTI
-Philip Morris International $PM
-Altria Group $MO
A quick background on each:
So who makes up "Big Tobacco"?
Let's meet our contestants:
-Imperial Brands $IMBBY
-British American Tobacco $BTI
-Philip Morris International $PM
-Altria Group $MO
A quick background on each:
9.
Imperial Brands IMBBY
Dividend Yield: 9.4%
Imperial is the weakest player among the "big 4".
They have a diversified portfolio of lower quality brands.
Brands include JPS, Winston, Blu, Kool among others.
Imperial Brands IMBBY
Dividend Yield: 9.4%
Imperial is the weakest player among the "big 4".
They have a diversified portfolio of lower quality brands.
Brands include JPS, Winston, Blu, Kool among others.
10.
British American Tobacco BTI (BAT)
Dividend Yield: 7.7%
British Tobacco is a strong player, and sells the most cigarettes world wide.
Their diversified portfolio includes: Camel, Newports, Grizzly, Vuse, Velo, and Vype among others.
British American Tobacco BTI (BAT)
Dividend Yield: 7.7%
British Tobacco is a strong player, and sells the most cigarettes world wide.
Their diversified portfolio includes: Camel, Newports, Grizzly, Vuse, Velo, and Vype among others.
11.
Philip Morris International
Dividend Yield: 6.1%
Philip Morris is the world's largest publicly traded tobacco company by market cap.
Their brand portfolio is headlined by Marlboro, the world's leading cigarette brand as well as IQOS - the leading heat-not-burn product.
Philip Morris International
Dividend Yield: 6.1%
Philip Morris is the world's largest publicly traded tobacco company by market cap.
Their brand portfolio is headlined by Marlboro, the world's leading cigarette brand as well as IQOS - the leading heat-not-burn product.
12.
Altria Group
Dividend Yield: 8.1%
Aside from its tobacco brands Marlboro, Black & Mild, Copenhagen, (and others)
It has minority stakes in Anheuser-Busch InBev $BUD, as well as Cronos $CRON, and Juul Labs.
It is licensing IQOS from Philip Morris.
Altria Group
Dividend Yield: 8.1%
Aside from its tobacco brands Marlboro, Black & Mild, Copenhagen, (and others)
It has minority stakes in Anheuser-Busch InBev $BUD, as well as Cronos $CRON, and Juul Labs.
It is licensing IQOS from Philip Morris.
13.
Altria and Philip Morris are sister companies, which is why they both sell Marlboro.
Altria sells to the US markets exclusively, and Philip Morris the rest of the world.
They were once one entity, and the world's largest tobacco company.
Altria and Philip Morris are sister companies, which is why they both sell Marlboro.
Altria sells to the US markets exclusively, and Philip Morris the rest of the world.
They were once one entity, and the world's largest tobacco company.
14.
Whether you invest in none, one, or all of them -
Is up to you.
There are some RISKS involved that you need to be aware of....
Whether you invest in none, one, or all of them -
Is up to you.
There are some RISKS involved that you need to be aware of....
15.
Tobacco companies are subject to regulations from government.
Governments across the world have steadily made life difficult for tobacco companies over the years.
While it's a debatable topic itself, regulation is something an investor in tobacco must always remember.
Tobacco companies are subject to regulations from government.
Governments across the world have steadily made life difficult for tobacco companies over the years.
While it's a debatable topic itself, regulation is something an investor in tobacco must always remember.
16.
Also, the industry is in transition away from cigarettes.
This means that these companies need to successfully execute this transition into new products and brands.
Messing up in this regard can threaten to damage the fundamentals behind an investment thesis.
Also, the industry is in transition away from cigarettes.
This means that these companies need to successfully execute this transition into new products and brands.
Messing up in this regard can threaten to damage the fundamentals behind an investment thesis.
17.
One final point:
Smoking is bad for you. I don't suggest you do it.
I approach this only as an investor that is looking to make a profit.
We are all adults here, and if you invest based on ESG that is OK too!
We are all friends here!
With that said.....
One final point:
Smoking is bad for you. I don't suggest you do it.
I approach this only as an investor that is looking to make a profit.
We are all adults here, and if you invest based on ESG that is OK too!
We are all friends here!
With that said.....
18.
What do YOU think?
Is there money to be had in tobacco moving forward?
Or are these dividend machines bound to go up in smoke?
Let me know what you think!
What do YOU think?
Is there money to be had in tobacco moving forward?
Or are these dividend machines bound to go up in smoke?
Let me know what you think!
