Motley Fool: Up with smoke


83
83 points

You want cheap? How about Marlboro cigarette maker Altria Group (NYSE: MO), with its stock recently down more than 47% from a 2017 peak? A falling stock price will increase a stock’s dividend yield, and Altria’s payout was recently yielding a whopping 8.3%.

If you don’t mind profiting from tobacco (or cannabis or alcohol), Altria offers a generous income stream that’s likely to be increased over time.

The tobacco industry is facing more challenges than ever and isn’t the growth industry it once was, but tobacco giants like Altria still have ways to reward their shareholders.

Increasing the price of tobacco products is unlikely to make smokers reduce their consumption. This gives tobacco companies considerable pricing power. Indeed, a government index of the price of tobacco and smoking products more than tripled from 2000 through late 2020. That’s an average annual inflation rate of roughly 6%.

Meanwhile, Altria is exploring ways to broaden its appeal with smokeless products; for instance, it’s introducing the IQOS heated tobacco system into some U.S. markets. It also invested $1.8 billion in licensed Canadian cannabis producer Cronos Group in 2018. Although the Canadian marijuana industry has been struggling under the weight of regulatory issues and company-specific miscues, it’s expected that Altria will eventually aid Cronos in developing and marketing cannabis vape products.

Ask the Fool

Q: With interest rates so low, I figure they will probably rise in the years ahead. Is that good or bad? – P.D., Green Bay, Wisconsin

A: High interest rates are great for savers, as bank accounts and certificates of deposit, or CDs, among other things, will offer more interest. Annuities bought when rates are high will pay out more, too. Freshly minted bonds will offer higher interest rates – but bond funds, and those looking to sell existing bonds with older, lower interest rates, will take a hit.

Meanwhile, higher interest rates can hurt interest-sensitive sectors of the economy. The price of gold often falls when interest rates rise, for example. Real estate is especially affected: When rates are high, homebuyers (even those with high credit scores) will face steeper mortgage payments and may have to buy lower-cost homes – or may end up deferring purchases. Sellers might have to reduce their asking prices to make their homes more affordable for prospective buyers. Those with adjustable-rate mortgages, known as ARMs, will see their mortgage payments gradually increase.

Q: What happens if my brokerage goes out of business? – W.H., Dunkirk, New York

A: Most brokerages are covered by the Securities Investor Protection Corp., which protects your account for up to $500,000 in securities and cash, including up to $250,000 in cash. (Some also carry additional insurance.) You’ll be protected if your brokerage fails – but not if your investments simply fall in value or if, for example, a company in which you own stock goes bankrupt. Be sure your brokerage is SIPC-protected by checking SIPC’s list of members. Or just call and ask the brokerage.

Learn more about good brokerages at our site, TheAscent.com, and more about the SIPC at SIPC.org.

My Smartest investment

One of my smartest investments was buying into medical cannabis company Tilray and tripling my investment. I also bought Disney at $35 and am still holding. I bought Amazon.com at $800 per share and sold when it was near $2,000. I bought into Juno Therapeutics before it was acquired by Celgene, too – there are so many more. It’s been a fun couple of years in the market. – M.P., online

The Fool responds: You point out something about investing that many people don’t realize: It can be fun!

Buying into promising companies and watching, hoping they’ll rise in value, is a bit like cheering for your favorite sports teams. It helps when the stocks perform as hoped, of course – and watching your portfolio swell in value can be very exciting. Just understand that building a big nest egg for retirement is a long game, and that the stock market will rise for some periods and fall for others – but over the long run it has always gone up.

Interestingly, Tilray and fellow cannabis producer Aphria announced in late 2020 that they would be merging, creating the world’s largest cannabis company (based on revenue). And Celgene, which bought Juno, was itself acquired by Bristol-Myers Squibb in 2019. Watching business mergers and spinoffs can also be exciting when companies in which you’re invested are involved.


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