It seems as if every 24/7 news cycle bombards us with the political and economic woes of the entire planet. Market indices’ daily swings look like the skyline of the Rocky Mountains – and these changes happen for no apparent reason.
Doesn’t give us much hope, does it?
Let’s all take a deep breath and realize that this isn’t the first time we’ve been through this.
If we go back a few decades, we can see similar periods of volatility. I’m sure you remember the savings and loan crisis, Asia in the late 90s, the dot-com bubble of 2000 and the housing bubble of three years ago.
These ups and downs are the nature of the market. So, instead of sticking our heads in the sand and waiting for the Eurozone to finally get it together, we need to learn from past downturns and be smart about this…
What have we learned during these economic periods of decline? Some high-yield stocks in certain industries tend to hold up better than others and some of these industries don’t come without their own controversy.
What is a “sin stock?”
You may not gamble, drink alcohol, or smoke. But from an investment standpoint, companies – or sin stocks – that produce and operate these products and services could add some beneficial diversification to your portfolio.
When you think about it, sin stocks should perform well during hard economic times. History shows that people don’t cut back on their bad habits in hard times but use them as a means of escapism.
One such sin stock is Philip Morris Company (NYSE: PM, Stock Forum), which was spun off from Altria in 2008.
Philip Morris’ outlook is strong
Philip Morris is the world’s leading international tobacco company, with products in approximately 180 countries outside the United States and a 27.6-percent share of the international market (this excludes China where there’s a state-owned monopoly). Philip Morris is the owner of Marlboro, the world’s strongest tobacco brand. Last year it shipped 297.4 billion units of Marlboro, more than double the next two largest brands combined.
Also, the fact that Philip Morris operates outside the United States provides the company and investors with a few important advantages.
1. First, it’s exposed to less litigation risk than its former parent Altria (NYSE: MO, Stock Forum), which operates only in the United States.
2. There’s the opportunity for growth, as tobacco use internationally is still expanding.
But what’s really important is Philip Morris’ policy of rewarding shareholders with both dividends and share repurchases, which are major factors in making the stock a solid investment in this climate. We have been advocating dividend income in this volatile market.
Since its spin-off, Philip Morris has increased its dividend 67.4 percent. The payout gives it a current yield of 4.3 percent. Analysts expect nearly a 12-percent increase for 2011 and to top that mark next year.
With this growth forecast, one can see why the dividend was increased. The future outlook for Philip Morris is strong.