Sinful stocks have a reputation for succeeding during difficult economic times. Industries that revolve around habit forming activities like gaming, alcohol and tobacco are often less prone to the cyclical downturns in the economy.
There is a moral and ethical argument to avoid owning sinful stocks but if you are seeking stable returns over the long term perhaps you should consider allocating a portion of your investments to the sin sector. Let’s take a look at 4 sinful stocks to own in your portfolio:
Gaming
Great Canadian Gaming Corp (GC) out of Richmond BC operates 10 casinos, 5 racetracks, a hotel and a community gaming centre. This sinful stock has not fully recovered from the economic downturn but is rated as a strong buy from 9 industry analysts.
GC’s annual revenues have been steady in the $380M range and their earnings before interest, taxes, depreciation and amortization (EBITDA) has been rising since 2008, despite the economic downturn. Great Canadian Gaming has a solid balance sheet and should be well positioned to take advantage in any upswing in the economy.
Alcohol
Liquor Stores N.A. Limited (LIQ) operates 236 liquor stores in North America, including 172 in Alberta where the province deregulated the retail liquor industry back in 1994. LIQ has recently converted from an income trust to a corporation as of January 2011 and pays a monthly dividend of $0.09/share.
While LIQ paid out more in distributions than they earned last year, they should be poised for a turnaround as the economy improves and some of their U.S. acquisitions get fully integrated into their portfolio. If they can continue to make headway into BC and into the U.S., and if they can improve their cash position this stock should become a long-term dividend machine.
Tobacco
Altria Corp (NYSE: MO) definitely fits the bill as a sinful stock. Altria directly or indirectly owns 100% of each of Philip Morris USA Inc., U.S. Smokeless Tobacco Company LLC, John Middleton Co., Ste. Michelle Wine Estates Ltd., and PMCC. Altria also holds a continuing economic and voting interest in SABMiller.
Altria currently pays out an annual dividend of $1.52 per share, and has over $17B in annual revenues with $3.6B in cash flow. Altria was the best performing stock in the S&P 500 for a 50 year period between 1957 and 2007 and has increased their dividend for 44 consecutive years. The tobacco industry faces constant pressure from lawsuits and regulations, but Altria continues to deliver outstanding returns for its shareholders.
Oil & Gas
With climate change and environmental issues making headlines all over the world, oil companies have been taking the brunt of the criticism. And no stock in recent memory has taken a bigger beating than British Petroleum (NYSE: BP) did following the Deepwater Horizon oil spill in April 2010. BP’s stock fell by 52% in 50 days and their costs related to the oil spill were estimated at $35B, causing them to suspend their dividend.
After a significant recovery, BP is still trading at 20% less than they were prior to the Deepwater spill. They began repaying their dividend, but at only half the previous rate. This could mean the dividend growth could be significant over the next few years, even if the share price grows at a slower rate. BP is still a global leader in oil & gas and should be able to put the 2010 disaster behind them.
Sinful Stocks: Profiting from Bad Habits
Socially responsible investors may cringe at the very thought of owning these types of sinful investments. But for others, investing is nothing more than finding solid companies that stand the test of time and can make a profit.
There is no arguing that sinful stocks can tempt us with their impressive returns and fat dividends. Most blue-chip stocks are known for being mature, boring and defensive. But if you’re looking for a bit of excitement in your portfolio while still keeping things relatively safe, find some sinful stocks to own.
