Published Wed, 11 Sep 2019 10:54:13 -0400 on Seeking Alpha
A lot of people have moral objections to owning tobacco stocks, which I totally understand. Not every industry is right for your needs, but I personally don't mind investing in tobacco, since smokers are going to smoke whether I profit from it or not.
And the fact remains that, historically speaking, no other industry has delivered better total returns over time.
CAGR Total Returns By Industry Since 1926
(Source: Ploutos Research)
Now a lot of people think that tobacco's glory days are permanently behind it, due to steady cigarette volume declines, and never-ending regulatory risks.
But as my former Motley Fool colleague Morgan Housel points out, tobacco's success, as exemplified by Altria (MO), isn't despite the tobacco industry's risks but precisely because investors focusing on risks has often made it undervalued.
Altria is the best-performing stock of all time, earning more than 20% a year for more than half a century. A lot of this performance was because people didn’t want to own the stock for moral reasons, or fears over new regulations. That kept the share price low, which kept the dividend yield high. And reinvesting a high dividend yield is like gasoline on a flame to compounding. So hating the stock led to stock outperformance – one action, then an equal and opposite reaction. Same thing in reverse during bubbles. Excitement leads to high valuations, and high valuations lead to unexciting returns." - Morgan Housel (emphasis added)
The same... Read more