Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Altria Group Inc (MO), Lorillard Inc. (LO), Reynolds American, Inc. (RAI): Dividend Investors Shrug Off Mayor Bloomberg’s Anti-Smoking Campaign

Altria Group Inc (NYSE:MO)On March 18, New York Mayor Michael Bloomberg asked his city council to outlaw the public display of cigarettes for sale. If the Democrat-dominated council complies, it will soon become illegal in New York City for vendors of smokes to show customers their wares. They’ll have to be hidden from plain view — stored in cabinets or under counters, for example. Yet it appears that dividend investors invested in smoking stocks don’t see a problem with that.

Already, Bloomberg has pushed through laws raising taxes on tobacco and banning smoking in restaurants and bars, and even in outdoor parks. As for this latest initiative, when asked about Bloomberg’s move last month, City Council Speaker Christine Quinn pronounced herself “very, very open” to the idea.

So why aren’t tobacco stocks suffering?

Dividend investors still hot on smokes
Since news of Mayor Bloomberg’s proposal broke, shares of tobacco industry bellwether Altria Group Inc (NYSE:MO) are up nearly 5% in value. Lorillard Inc. (NYSE:LO) and Reynolds American, Inc. (NYSE:RAI) are up 4.2% each, and even British American Tobacco PLC (ADR) (NYSEMKT:BTI) has notched a respectable 3.4% gain.

There are probably two reasons for this — maybe two and a half.

Hey, New York: Get over yourself
First and foremost, it’s not as if the New York market is the be-all and end-all for these companies. “Gotham” it might be, but America’s most populous city is still just one city, and most of these companies sell across the country and around the globe. So any decrease in tobacco sales caused by a new point-of-sale display ban will only dent the companies’ revenue streams — not dry them up entirely. What’s more, even in NYC, cigarettes will still be available for sale. They just won’t be visible.

The other important factor buoying tobacco stocks among dividend investors is the valuations attached to these companies’ shares.

Buy discount cigarettes here
After all, tobacco stocks weren’t particularly pricey to begin with, giving them some room to run. If your average stock on the S&P 500 today costs a bit more than 14 times forward earnings to purchase, then all four of these stocks charge less than that. Altria Group Inc (NYSE:MO), Reynolds, and BAT all sell for about 13 times earnings and change. Lorillard Inc. (NYSE:LO) is a relative bargain at just 12.1 times forward earnings.

And of course, the real attraction of these stocks is their generous dividend payments. From a very respectable 2.5% dividend yield at BAT — two-tenths of a percent more than the average S&P stock pays — dividend yields among this group of stocks quickly rocket up the scale to Altria Group Inc (NYSE:MO)’s premium 5.1% yield, to 5.3% at Reynolds, and a whopping 5.4% at Lorillard Inc. (NYSE:LO).

Like a nice, long drag on a smoke, there’s nothing quite like a big, fat dividend yield to ease investors’ worries when Big Government tries to stress ’em out.

The article Dividend Investors Shrug Off Mayor Bloomberg’s Anti-Smoking Campaign originally appeared on

Fool contributor Rich Smith and The Motley Fool have no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.