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The price of everything has been skyrocketing recently and there is going to come a point where consumers are going to be unable to keep up. Even if unemployment continues to improve, the American consumer is going to be stressed paying $4 for a gallon of gas. Of course, these factors and all of the chaos overseas could lead to an ever volatile market; the VIX has crossed over 20 several times in the last 2 weeks.

That is why is it is a good time to load up on vices that the American consumer cannot do without and will pay outrageous prices for. There are the essentials; like oil, eggs, and medicine that people need on an everyday basis, but I’d rather look at non-essentials that are so price-inelastic that their consumption defy the laws economics and general health.

The American government benefits greatly off the sale of alcohol and cigarettes. A downward turn in either would have repercussions so they have a vested interest in their success. They also have a vested interest in the youth of the nation, and in furtherance of this they significantly cut down the use of advertisements in the cigarette industry. This was cash in the hands of the manufacturers who found that their numbers stayed relatively constant despite a drop in marketing. Meanwhile beer has been prospering as well, especially in the craft brewers segment. People may have slowed down on their trips to restaurants but they are still buying liquor.

The cigarette stocks have been known to offer very lucrative dividends with mild price accumulation. Some of the stocks mentioned below have higher payout ratios than I would recommend taking on so I will point this out. Liquor stocks do not offer the dividend advantages that cigarettes do, but there is certainly hope for their short term future as spending in many other sectors decreases. Furthermore, both of these industries rely heavily on the strength of their brands, many of which have been dominating for decades.

Liquor Stocks

Molson Coors Brewing (NYSE:TAP) – Molson Coors is based out of Canada but owns 42% of Miller Coors, their American joint venture. They have strong brands in both the ‘cheap’ and ‘craft-like’ beers in Coors, Blue Moon, Leinenkugel’s, and many more. They have fallen roughly 12% in the last two months and could be offering a very attractive entry point.

Price

Market Cap

P/E

Div Yield

$43.54

$8.14 B

11.52

2.50%

Anheuser-Busch Inbev (NYSE:BUD) – The merger a few years ago created the largest liquor company in the world, to the tune of more than 10 times the market cap of TAP. However, the P/E is almost double so investors are certainly putting more chips on BUD, which may equate to slightly higher risk. Either way, their brands are equally if not stronger with Stella Artois, Becks, Hoegaarden, and all of the Buds.

Price

Market Cap

P/E

Div Yield

$57.06

$90.84 B

22.56

0.70%

Boston Beer Co (NYSE:SAM) – This is the leader in the craft brewers and has been on an outstanding run since the first quarter of 2009. Many would argue that there is too much risk at this price but SAM continues to churn out quality products. In this instance, I would argue that if you have faith in their beers you should have faith in their stock.

Price

Market Cap

P/E

Div Yield

$93.37

$1.25 B

29.47

0

Diageo PLC (NYSE:DEO) – A leader in the non beer liquor stocks, the United Kingdom’s Diageo owns names like Smirnoff, Johnnie Walker, Captain Morgan, Jose Cuervo, and Baileys, but this hardly does justice to the list. Like the rest of these stocks, they will have to deal with rising input costs, but this could be your best play in the liquor sector. Brand presence, capital growth, low P/E, moderate yield; Diageo has it all.

Price

Market Cap

P/E

Div Yield

$77.53

$48.53 B

16.44

2.5%

Cigarette Stocks

Philip Morris International (NYSE:PM) – Right now smoking is much larger overseas than it is in America and PM capitalizes on this segment of the market. They are the largest company in the sector and have brands like Marlboro, Parliament, Virginia Slims, and Chesterfield. Their dividend is modest in comparison and they have been on a 14% run but there is still room to grow here.

Price

Market Cap

P/E

Div Yield

$63.64

$114.37 B

16.23

4.0%

Altria Group (NYSE:MO) – As you likely know, Altria spun off Philip Morris so they have many of the same brands in their repertoire, with the addition of snus. They’ve been increasing their dividend for 42 years so you can rest assure that it will be sticking around for a while.

Price

Market Cap

P/E

Div Yield

$25.38

$53.09 B

13.56

6.0%

Reynolds America (NYSE:RAI) – Reynolds’ brands are equally impressive to PM and MO with Camel, Pall Mall, Winston, Kool, Salem, and Natural American Spirit. They have jumped just under 10% recently as investors have started to embrace the industry, inflating their P/E a bit. I would also watch out for their high payout ratio of 97%.

Price

Market Cap

P/E

Div Yield

$34.70

$20.23 B

18.25

6.1%

Lorillard Inc (NYSE:LO) – Strictly stock speaking, LO’s has an extremely attractive yield given their P/E. They’re also coming out what I would be hesitant to call a head and shoulders and the price has mellowed out some at 12% less than their November high. Their biggest brand name is Newport and their payout is comparable to PM at 63% making this potentially the most attractive pick on the list.

Price

Market Cap

P/E

Div Yield

$77.54

$11.29 B

11.46

6.7%

Universal Corp (NYSE:UVV) – This stock has taken some huge hits since last May. Drops of over 10% with slow rebounds have been far too common. However, if the yield is all you’re interested in, their payout ratio is the lowest on the list at 35%, as is their P/E. Unlike the others they do not actually manufacture and sell cigarettes, but are in the tobacco leaf game. This makes them more susceptible to the rise commodities prices, the drop in the demand for tobacco, and of course, the weather.

Price

Market Cap

P/E

Div Yield

$41.78

$0.9799 B

7.81

4.6%

Vector Group (NYSE:VGR) – This stock made the list exclusively for their yield, which may not be too stable given the 220% payout ratio. They certainly do not have the brand strength of the others and their P/E is a bit high, even after a 10% drop in the last couple of months. They are a very small company and is far too speculative for my liking. They also own a real estate company (New Valley LLC) though I have no idea how this furthers their cigarette sales.

Price

Market Cap

P/E

Div Yield

$16.78

$1.26 B

23.63

9.6%

In these uncertain times I would bank on consumers continuing to drink liquor and smoke cigarettes. As stated, their prices are very inelastic meaning demand is relatively constant even in times like these. For that reason, I would sure up some dividend plays in the cigarette sector while looking for some growth in liquor while the economy continues to teeter.

Source: Adding American Vices to Your Dividend and Growth Portfolios