Let smokers pay your retirement

I hate smoking, period. In my lifetime, I did smoke for curiosity when I was teenage but that was it. As I grew up, I have never touched cigarettes. Now I even feel disgusted when I smell it. But this does not mean you cannot make some money from the things you don’t like. Actually you can let smokers pay your retirement to some extent! You may ask, isn’t the tobacco industry a dying business and how can it be a good long-term investment? Well, indeed, ever since 1998 when a “Tobacco Master Settlement Agreement” was signed off, tobacco companies have been forced to pay billions of dollars in fines, facing tighter restrictions on the sale of tobacco and very high excise taxes. The US tobacco sales have been falling ever since. Nevertheless, the tobacco companies are still thriving and are paying investors tons of money year after year. How so? I think there are 2 major reasons:

·         Addiction is not something people can easily get rid of. Regardless how medically harmful that almost everyone should know of, when people become addicted to smokes, they cannot easily stop. They will more likely simply continue, even at the expense of paying increasing prices for cigarettes and decreasing physical health. This is especially true for young people as they don’t feel anything wrong yet about their health. The situation is much worse in the developing countries that smoking is much more prevailing and even is a fashion. Actually in many European countries like France etc, smoking is still a very popular habit.

·         Big revenue for governments which they cannot afford to not have. It is a dilemma for governments that on one hand, they want to restrict the development of the tobacco industry but on the other hand, they cannot simply let them go as financially it will be a life-threatening blow to the government, given the tobacco companies generate huge revenues they have to rely on. There was one funny example in the US: years ago, a tobacco company was fined by several state governments for billions of dollars. The company said, OK, it you did that, we would go bankruptcy. What happened? The governments backed off and let the company go without such a heavy fine!

Therefore, you can really feel safe to bet on tobacco company stocks in terms of retirement investment. As a physician, I definitely ask you not to smoke, but as an investor, I would highly recommend you to consider buying such stocks. They are very reliable, recession resistant and paying high dividends. I have got two tobacco stocks since 2008 (one I got for free), which I will keep for decades for my retirement.

I bought Altria (MO), the biggest tobacco company in the US, which markets top brands such as Marlboro, at around $22 per share. Not it is trading around $35, a nice over 50% capital gain in the past 8 years. The best part is actually its thick dividend: over 5% at the currently price. Since my original cost was only $22, my current dividend yield is actually 8%. MO has paid dividends for 44 consecutive years, with its dividends increased over 46 times. With this kind of dividend growth rate, I can easily enjoy over 10% dividends after a few more years. With dividends reinvestment, this could become a significant source of income for me when I retire. Even better, shortly after I bought MO, it span off Phillip Morris (PM), which is focusing on the international markets. I got 1 to 1 PM shares for free at around $55 per share. Now it is around $90 per share. PM is also paying great dividends with a current yield 4.3% that is also increasing every year. I’m extremely happy to have these two “sin/dirty” stocks in my retirement portfolio and hold them for years: I have accumulated quite a lot of additional shares of MO and PM respectively purely from dividend reinvestment in the past 8  years. This will only accelerate as years go by.