BTI / Tobacco Generally

[fenders53]

(10-03-2021, 08:08 AM)bankerboy Wrote: I might when I get closer to retirement however!


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I like ENB as well in that space.  Like Crimson I don't think value traps, or high dividend stocks are generally in our best interest long term. I think they are a horrible idea for a young investor. I did experiment some as I enter retirement soon.  I need to mix things up because I'll get it wrong if I go all in on DGI, growth, or whatever.  

I was leaning T-ENB and (MO or BTI).  T is kicked out already, and tobacco makes me nervous for a longer term hold.  The one thing these high yielders seem to share is constant drama.  I would never feel comfortable not tracking a large position.  My hope was a correction gives us some choices that yield well over 4% with more possibility of growth.

In any event, if you buy a value trap after it has already dropped, there is a chance you can later rotate it to another stock of higher quality when it gets hit.  It's not like sitting on cash of course, but high yielders have their weeks when they are popular and outperform when the market is getting roughed up.  They are somewhat defensive.  I also average into yield traps with bad charts.  BTI looked pretty good at 38 just a few months ago but I am glad I didn't load up so I could finish the position later.  When a stock is in an obvious downtrend I rarely regret going slow.

[fenders53]

BTI up like 75 cents today.

Get this one Kerim.  The green matches all the hundos you're making now.

https://pxhere.com/en/photo/1434959?utm_...rce=pxhere

[crimsonghost747]

Just to be clear, I'm not too much against high div payers in general. I fully realize that they have their place in the portfolio of many people, myself included. It is very likely that anything yielding 6-10% will underperform the market in the long-term but in some situations getting that cash flow is worth giving up the growth.

I just think that whatever company you invest in, whether it yields 10% or 0%, has to have a sound business model. And I just don't think that is the case for these massive tobacco companies anymore.

[fenders53]

(10-13-2021, 01:51 PM)crimsonghost747 Wrote: Just to be clear, I'm not too much against high div payers in general. I fully realize that they have their place in the portfolio of many people, myself included. It is very likely that anything yielding 6-10% will underperform the market in the long-term but in some situations getting that cash flow is worth giving up the growth.

I just think that whatever company you invest in, whether it yields 10% or 0%, has to have a sound business model. And I just don't think that is the case for these massive tobacco companies anymore.

I didn't mean to relaunch the lecture on Kerim.  I know he has a sense of humor.    

You can score on the high yielders if you catch a bottom that lasts for months and trade them.  It gets sketchy after that.  My experience has been poor the past few years.  The only thing that has saved me is selling puts to enter then covered calls.  I've seen enough to believe I'll screw this up if I try to buy and hold them for too long. Almost without exception the charts say we are chasing yield traps.  Over and over but they are always tempting.  Guaranteed 8% return, then you give most or all of it back and you are hoping the dividend will just keep you even.

Back on topic, tobacco may have a nice bottom bounce of non-combustibles news.

[DividendGarden]

Revisiting this thread. I'm actually siding with Kerim's thesis here for many reasons. The fact that the ESG crowd shuns tobacco is a positive, in my mind, because it helps keep the P/E ratio low. Even if menthol gets banned in the U.S., they sell to almost 200 countries. The price is low, it's trading at 7x-8x earnings. The dividend is high at >8% but it is well covered by profits. Their revenue is actually growing. They have new products that are growing very rapidly. I'm actually considering backing up the truck (responsibly) on BTI.

[fenders53]

The thesis has not been working for five years. The yield is the only attraction and the opportunity cost has been enormous in a huge bull market. Anything else quality crushed tobacco. The yield is safe for a year or more so you won't lose too much money. It took me a long time to accept the reality of yield traps. The market is all about sentiment and ESG will win on this subject. They will keep the multiple depressed. A 5% total return on a proven risky sector is a bad bet.

[jalanlong]

(10-22-2021, 12:25 PM)fenders53 Wrote: The thesis has not been working for five years.  The yield is the only attraction and the opportunity cost has been enormous in a huge bull market.  Anything else quality crushed tobacco.   The yield is safe for a year or more so you won't lose too much money.  It took me a long time to accept the reality of yield traps.  The market is all about sentiment and ESG will win on this subject.  They will keep the multiple depressed.   A 5% total return on a proven risky sector is a bad bet.

For what it is worth, BTI is up 30% since the last post on this thread.  Tobacco seems to be one of those things that you cannot see how it could be profitable 20, 50 or 100 years from now.  However, I just had a friend return from a trip to Italy and he said the number of people he saw smoking over there was unbelievable to him.  That may not be a good enough thesis for an investment but I do think in the US we underestimate how many people in other countries still smoke quite a bit.

[Kerim]

Thanks Jalanlong. Yeah, again, I totally agree that it would be silly to assume that big tobacco will be in good shape in 30 years, but I'm delighted to have them shower me in cash for the next five or ten. Yes, I'll keep a much closer eye on these than, say, my JNJ or KO, but JNJ and KO aren't going to have nearly the positive impact on my portfolio that tobacco will in the next five years.

Which brings me full circle to my original post. A high dividend yield is not at all the same thing as a yield trap. Sure, you should be wary of an unusually high dividend. But in BTI's case, the huge divided (though slightly less huge than when this thread started) is amply covered by current revenue. And BTI's earnings (per share, at least) ARE growing; 2021 was its highest EPS since at least 2014. To shun that fire hose of cash that is right in front of you, now, because at some point in the future the tobacco party surely must end (which people have been saying for decades now, by the way) doesn't make sense to me. But hey, that's why it is a market!

[fenders53]

I will let this argument go when tobacco even sniffs the SPY return on a 10yr back test. Tobacco looks better today as a scared market heads for dividends. I completely get it dividends are great if you are actually spending them now. If just a drip it's just part of the total return they fail at delivering.

I am not invested Kerim so I won't hate it if you are right some time soon, but you have a LOT of ground to make up. MO at 70+ and SPY stays right here would make me admit I am wrong on a 10yr back test.

[crimsonghost747]

I'm glad that it has been working for you.
And this just goes to show that even though almost everyone seems to think an industry has a bleak future, it can still be a worthwhile investment when timed right. Investments don't always have to be 30 year investments, though I personally always aim for that.

There is always the chance that we could just be completely wrong too.

[Kerim]

(04-02-2022, 03:21 PM)fenders53 Wrote: I will let this argument go when tobacco even sniffs the SPY return on a 10yr back test.  Tobacco looks better today as a scared market heads for dividends.  I completely get it dividends are great if you are actually spending them now.  If just a drip it's just part of the total return they fail at delivering.

I am not invested Kerim so I won't hate it if you are right some time soon, but you have a LOT of ground to make up.  MO at 70+ and SPY stays right here would make me admit I am wrong on a 10yr back test.

I'm not sure why back-testing would be your standard here, or what ground I'd have to make up. Entry price is (almost) everything. I didn't buy BTI ten years ago. I bought it (mostly) in Q4 2021. Since my purchase(s), my BTI shares are up about 16 percent, without even counting the dividends I've already received (maybe another 1.5 percent of my initial outlay). The S&P is up about 2 percent in the same period.

Sure, that is a tiny blink of time, and who knows how well I will ultimately fare versus the S&P over a long time period. But if you wait until a ten year back-test looks favorable, you're likely buying your stock at relatively high prices. When good stocks are beat up, there's good money to be made. But that's often when they look worst on backwards-looking metrics.

[fenders53]

I look at trends for stocks that struggle to give some evidence the company or industry is likely to be worth holding.  I need some reasonable amount of total return. Stocks like IBM, T and the tobacco stocks I have checked look like poor holds for a long time now.  Doesn't mean they can't perform better going forward, but IMO it makes it less likely.  I have done some swing trades in most of the above.  They seem range bound and so far the dividend community rescues them they get extremely cheap.

I back test most any stock I intend to hold.  Especially before I would make it a core positions.  All my stocks don't have to outperform the index, but if they only provide half the return for many years, I can find an alternative.  If MO were to hit 70, or even 60 again then maybe the the fundamental story has changed for the long-term.  I held PFE for over 20 years before I back tested it.  My total return was under 5% for all those years.  Then came COVID and maybe they have turned a corner.  In any case I held the stock ten years too long.  My patience became stubborness.  Hindsight is 20/20 but almost any aristocrat would have been a far better investment.