When the smoke clears: tobacco as a long-term dividend play

Over the 15 years to 2015 the MSCI World Tobacco index offered a better return than the MSCI World index in every year bar three. Cumulative performance has likewise been striking. Between December 2000 and December 2015, the cumulative net US dollar return on the MSCI World Tobacco index came in at over 860% versus just 181% for its counterpart.

Just as significant is the dividend yield: 3.91% for the Tobacco Index against 2.6% for the wider index.

In the current low growth, potentially deflationary environment, we believe stable, international businesses with sustainable dividends and steady cash flows are attractive. It is important to take into account the potential for increased regulation around tobacco, as well as broader environmental, social and governance issues relating to the sector, but we believe some tobacco companies will continue to offer those characteristics.

Robert Shelton – Newton, a BNY Mellon company

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