Home > Stock Analysis

Sinful Stocks For Blissful Returns

Posted: Oct 15, 2008 14:41 PM by Todd Shriber

Tickers in this Article: BF.A, BF.B, DEO, IGT, LMT, LVS, MO, OTC:ITYBY., WYNN

By now, most investors are familiar with the term "sin stocks". It seems to be as overused in Wall Street circles as "hockey mom" or "NASCAR dad" are in the political arena. While we may tire of hearing the term, the profits vice stocks can deliver to a portfolio can definitely help investors sleep easier, especially in these tough times. In fact, conventional wisdom and historical performance shows that sin stocks perform no matter what the broader markets are doing.

Get Free Stock Analysis By Email

Defining Sin
The term is fluid to be sure. To the anti-smoking crowd, a sin stock would be Altria Group (NYSE:MO). To the anti-war crowd, Lockheed Martin (NYSE:LMT) would be the epitome of sinful. While those that look down on alcohol consumption may shy away from adding the likes of Diageo (NYSE:DEO) to their investment arsenal.

The fact is, no investor should be shy about these kinds of companies to their portfolios. Many of them boast strong balance sheets that feature consistent histories of dividend payouts to shareholders. In addition, the larger proprietors of vice are marked by other favorable features such as strong cash on hand positions and tidy P/E ratios.

Noteworthy Sin Stocks
Company	Market Cap	P/E
Diageo Plc	$37 Billion	15
Brown-Forman	$7.5 Billion	18
Lockheed Martin	$36 Billion	12
Wynn Resorts	$5.5 Billion	14

Sipping on Profit
Diageo, the British purveyor of some of the largest liquor brands in the world, simply cannot be ignored in the discussion about sin stocks. The company, whose shares are listed in the States as American depository receipts (ADRs), makes such famous brands as Smirnoff Vodka, Johnnie Walker Scotch and Captain Morgan Rum. It is a true giant in world of booze. However, Diageo's market share isn't the only thing about it that's big. Diageo pays a hefty $3.11 dividend for a 5.3% yield, making it a true dividend darling.

Brown-Forman (NYSE:BF-A, BF-B) of Kentucky is America's answer to Diageo. The company, which makes among other brands, Jack Daniel's Whiskey and Southern Comfort bourbon, recently announced a 5-4 stock split applicable to its Class A and B shares. The B shares are most readily available to investors and for every four A share or B share held the stock split gave one additional class B share.

Getting Defensive With Defense
An election year in the U.S. means defense stocks are being watched closely by Wall Street. Speculation abounds about which candidate will have the greatest impact on the sector, but the fact of the matter is neither candidate will be keen to cut defense spending, meaning companies like Lockheed Martin are well-positioned to thrive.

Lockheed is a true "top gun" in the defense industry, making fighter jets from the F-35 Joint Strike Fighter to F-16 Falcon. The company sports a solid $2.28 annual dividend.

Viva Las Vegas (and Macau)
Wynn Resorts (NYSE:WYNN), like many casino companies, has seen earnings revenue fall as a result of the sluggish U.S. economy. The owner of the Wynn Las Vegas casino and resort isn't entirely dependent on the Nevada desert city for all of its profit, and that's good news for investors. Like many American casino operators, Wynn has turned its eyes to the "island of sin" off China's coast, Macau. Wynn is bolstering its presence as is casino rival Las Vegas Sands (NYSE:LVS). If you want a dividend out of the casino space, turn your attention to International Game Technology (NYSE:IGT) which focuses its business on gaming equipment and has a 14 cent quarterly dividend which is a 4.4% dividend yield. The aforementioned casino operator Las Vegas Sands isn't a dividend payer. Las Vegas Sands was down from the $35 level at the start of the month to $11 per share just after 3:30pm EST on Wednesday, October 15.

Smoke Stinks, Tobacco Stocks Don't
Imperial Tobacco Group (OTC:ITYBY), another British sin ADR, is the quintessential vice stock. No sinful habit has been more maligned or warned against over the years than smoking. The warnings haven't really affected the bottom lines of companies like Imperial, the fourth-largest tobacco firm in the world. Burgeoning middle classes in emerging markets such as China and India have appetites for tobacco, allowing companies like Imperial to flourish.

Investors should note that Imperial is a thinly-traded, pink sheets issue. More liquidity and better dividends in the tobacco sector are available via senior exchange stocks such as Altria, which boasts a 6.9% dividend yield.

Bottom Line: Sin Stocks Help Portfolios
At the end of the day, sin stocks, even just one or two, have a place in nearly any portfolio. Want to counterbalance the addition of an alcohol or gambling stock to your investments? There are dozens of socially aware funds available to assuage any concerns of having too many sin stocks in your investment lineup. Chances are you'll be raising a glass or lighting a cigar to celebrate the performance of your sin stocks before you're doing the same for your socially acceptable investments, though.

For added perspective, read Socially Responsible Investing Vs. Sin Stocks.

By Todd Shriber

Rate this Article: Your Rating: Overall Rating: Vote Now!