Chalk it up to the human condition, but for better or worse, many so-called “vice stocks” tend to perform very well in the market – both in good economic times and bad.
For investors, this means reliable returns.
It also happens that many such companies also pay dividends.
Here are two such dividend payers worth considering…
Smoke ‘Em While You Got ‘Em
Altria (NYSE: MO) manufactures and produces such popular cigarette brands as Marlboro, Basic, Benson & Hedges, Parliament and Virginia Slims.
Granted, smoking might not be your thing, but dividends probably are.
And Altria not only pays them, it pays them with gusto.
With a projected yield of 4.74%, a quarterly dividend of $0.44, and 46 years of consecutive increases under its belt, Altria’s been a go-to dividend investment for ages.
However, it’s not 1985 anymore. People are smoking less. Regulation and taxation are taking their toll. And the tobacco market, while still lucrative, is weakening. Cigarette volume in the United States is declining about 4% per year. That figure could increase rapidly in the future if regulation becomes more aggressive, thereby further encouraging people to quit.
That prospect is made all the more worrying when one considers Altria’s dividend-payout ratio (DPR). Last year it was up to 96.3% from 78% the year before. This year, it stands at 81%, just a notch above the 80% target set by management.
It’s an aggressive DPR that doesn’t leave much room for decreasing earnings. So the next 10 years will have to be very good for Altria to keep increasing its dividends. But if developed governments have their way – and they have thus far – Altria could very likely run into headwinds that make its dividend program unmanageable.
That said, emerging markets mean Altria has room for growth elsewhere. So if you believe that the future will be as smoke-filled as the past, then MO could be a viable long-term dividend holding.
Too Soon for a Long Bet?
Las Vegas Sands (NYSE: LVS) is an operator of integrated casinos, hotels and resorts in the United States, Macao and Singapore. This year, it anted up to shareholders by initiating a quarterly dividend payment of $0.25, giving the stock a projected yield of 2.26% [based on recent prices].
While it’s true that two quarters of paying dividends isn’t quite “aces,” Las Vegas Sands nevertheless has a hand of dividend prospects that can’t be claimed by its close competitors. Of other top dogs in the gambling industry – MGM Resorts International (NYSE: MGM), Caesars Entertainment (Nasdaq: CZR) and Wynn Resorts (Nasdaq: WYNN) – only the last pays dividends… poorly. In the five years since its first disbursement, Wynn’s dealt shareholders a losing hand by making two substantial cuts and only one increase.
Las Vegas Sands’ management, on the other hand, appears to be making a push to focus on paying dividends well into the future. CEO, Sheldon Gary Adelson, told shareholders in the last earnings call that “everybody – whether it’s me, my wife, my kids, my pets, my doggies, or kitties – every other shareholder in the company wants dividends. So we’ll probably focus more on dividends.”
In 2008, Las Vegas Sands took a deep fall, losing about 95% of its stock value. Since then, it’s rebounded, but it’s still sitting at about a third of the price of its former high. That said, in the long term, Las Vegas Sands might be worth the gamble. As one Morningstar analyst puts it, “We view Las Vegas Sands as significantly undervalued relative to its strong competitive standing, excellent growth prospects and position as a best-in-class operator.”
So for dividend investors, Las Vegas sands could become an attractive and reasonable investment – given a few more years of providing shareholding “doggies and kitties” increasing payments, that is.
Best regards,
Ryan Anders
Source: Dividends and Income Daily
