Recent Performance Review Of 5 Large-Cap Cigarette Producers

Health issues aside, tobacco/cigarette companies are among the most recission resistant businesses. Historically, several vice-based consumer goods, such as purveyors of alcohol and tobacco products, have sustained lower retail sales declines than the average during prior recessions.

In many cases, and due to a wide variety of circumstances, sales of such products actually increase when consumers work less and/or cut food budgets. Nicotine is known to calm the nerves during stressful situations, curb ones appetite and even provide a slight stimulative effect. Additionally, due to the addictive nature of the vice, smokers are often reluctant to cut tobacco from their budgets.

Nonetheless, at the onset of this financial crisis, many investors stayed clear of tobacco equities. This was not only due to concerns over the industry's future, but also due to fears that the then incoming Obama Administration would increase cigarette taxes and regulations.

Though federal excise taxes on cigarettes were increased from 39 cents to $1 per pack, the fear of more significant regulatory risks upon the industry was broadly overestimated, at least so far. New regulations and/or taxes could be implemented at any point in the future.

These companies have, thus-far, often easily pushed through price increases on their often captive and brand-loyal customers, many of whom rely upon a smoke to help get through stressful times, or even waking up.

As a result of the less than expected added regulations and taxes, tobacco companies performed well during 2009 and 2010, along with the broader market. Moreover, and largely due to their above-average dividends, recession resistant businesses, strong brand recognition and the ability to raise prices, tobacco companies fared exceedingly well during 2011, vastly outperforming the broader market.

Below, I have provided the present yield and recent performance for five publicly traded large-cap tobacco companies: British American Tobacco (BTI), Lorillard (LO), Altria Group (MO), Philip Morris International (PM) and Reynolds American (RAI).

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Below is a 5-year equity performance comparison chart. It, like the above equity performance rates, does not include dividends paid and/or reinvested.

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As the above chart shows, these companies have performed well since the recent financial crisis first hit the markets. The group did depreciate considerably in 2008 though. Most have since moved up 40-60 percent. The chart also shows that the 2011 was considerably more volatile than 2009 and 2010. Thus far in 2012, it appears above-average volatility will continue.

Disclaimer: This article is intended to be informative and should not be construed as personalized advice as it does not take into account your specific situation or objectives.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.