Despite health concerns, the global tobacco industry is evolving amid changing consumer behavior and regulatory dynamics, driven by innovations in reduced-risk products, focus on sustainability, and persistent demand, shaping the industry's growth trajectory.
Thus, investors could consider investing in top tobacco stocks, Turning Point Brands, Inc. (TPB), Vector Group Ltd. (VGR), and Imperial Brands PLC (IMBBY) this year.
The tobacco market is witnessing increased opportunities as smoking habits experience a rapid surge, driven by evolving lifestyles and busy schedules. Moreover, the industry's resilience, driven by factors like e-cigarette popularity, GDP growth, and pandemic-related demand, highlights sustained profitability despite global anti-smoking efforts and regulatory changes.
The global tobacco products market is forecasted to achieve a revenue of $965.10 billion in 2024. it is projected to expand at a CAGR of 2.5% until 2028. In addition, cigarettes are the dominant segment, comprising the largest market volume at $854 billion in 2024.
In addition, the global number of smokers is projected to rise by 12.6 million individuals from 2024 to 2028, reaching a new peak of 1.1 billion individuals in 2028. Moreover, it indicates a ten-year consecutive growth.
Furthermore, the vape industry has seen rapid growth, driven by a shift away from traditional smoking due to health concerns. Vaping is perceived as a potentially safer alternative, attracting both former smokers and new users. The industry's diverse flavors, customizable options, and technological advancements have contributed to its popularity.
The global e-cigarette and vape market is poised to reach $59.17 billion by 2031, growing at a CAGR of 14.2%, fueled by increasing awareness of safe, smokeless alternatives to traditional tobacco offerings.
Considering these conducive trends, let’s examine the fundamentals of three Tobacco stock picks, beginning with the third choice.
Stock #3: Turning Point Brands, Inc. (TPB)
TPB manufactures and distributes adult consumer products, including rolling papers, cigars, moist snuff, and vapor products. The company sells its products under various brands through wholesale and retail channels, serving both traditional and non-traditional retail markets.
On January 5, 2024, TPB paid a regular quarterly dividend of $0.065 per common share. The company pays $0.26 annually, which translates to a yield of 1.04% on the prevailing price level, higher than its four-year average dividend yield of 0.79%.
The company has raised its dividend payouts at a CAGR of 9.1% and 9.5% over the past three and five years, respectively. Moreover, the company boasts a six-year record for consecutive years of dividend growth.
In the third quarter ended September 30, 2023, TPB generated net sales of $101.72 million. The company's adjusted net income and EPS rose 1.6% and 5.6% year-over-year to $14.52 million and $0.76, respectively. Moreover, it reported adjusted EBITDA of $24.40 million.
Street expects TPB’s revenue and EPS to be $90.07 million and $0.61, respectively, for the fourth quarter ended December 2023. The company surpassed the revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 16.3% over the past three months to close the last trading session at $24.95.
TPB’s POWR Ratings reflect its sound prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
TPB has a B grade for Momentum. Within the A-rated Tobacco industry, it is ranked #3 out of nine stocks.
In addition to the POWR Ratings stated above, one can access TPB’s additional Growth, Value, Stability, Sentiment, and Quality ratings here.
Stock #2: Vector Group Ltd. (VGR)
VGR manufactures and sells cigarettes in the United States. The company is also involved in real estate investment, operating apartment buildings, hotels, and commercial real estate ventures.
On December 15, 2023, VGR paid a regular quarterly cash dividend of $0.20 per common share. The company pays $0.80 annually, which translates to a yield of 7.46% on the prevailing price level. Its four-year average dividend yield of 7.47%.
The company has raised its dividend payouts at a CAGR of 15.6% over the past three years. Moreover, the company boasts a 23-year record for consecutive years of dividend growth.
During the third quarter, which ended September 30, 2023, VGR’s total revenues stood at $364.11 million. The company's adjusted net income and net Income applicable to common shares grew 38.2% and 37.5%, respectively, from the previous-year quarter to $52 million and $0.33. Moreover, its adjusted EBITDA increased 8.8% year-over-year to $94.93 million.
VGR’s revenue is expected to be $357.60 million for the fourth quarter ended December 2023. Its EPS for the same quarter is expected to grow 3.2% year-over-year to $0.32. The company surpassed the EPS estimates in three of the trailing four quarters.
VGR’s shares have gained 1% over the past three months to close the last trading session at $10.72.
VGR’s POWR Ratings reflect its robust prospects. The stock has an overall B grade, which translates to Buy in our proprietary rating system.
VGR has a B grade for Value, Momentum, and Quality. Within the same industry, it is ranked #2.
To see VGR’s additional POWR Ratings for Growth, Stability, and Sentiment, click here.
Stock #1: Imperial Brands PLC (IMBBY)
Based in Bristol, the United Kingdom, IMBBY manufactures and sells tobacco and tobacco-related products globally under various brands. The company is also involved in diverse activities, including distribution, publishing, transportation, and research and development of e-vapor products.
On January 4, 2024, IMBBY declared a quarterly dividend of 51.82 pence, payable on March 28, 2024. The company pays $1.86 annually, which translates to a yield of 7.54% on the prevailing price level. Its four-year average dividend yield is 9.31%. Moreover, the company boasts a 14-year record for consecutive years of dividend payments.
In the fiscal year, which ended September 30, 2023, IMBBY reported revenue of £32.48 billion ($41.32 billion). The company's operating profit and profit for the year increased 26.8% and 47.5% from the prior fiscal year to £3.40 billion ($4.33 billion) and £2.46 billion ($3.12 billion), respectively. Moreover, its EPS grew 52.3% year-over-year to 250.80 pence.
Analysts expect IMBBY’s revenue and EPS to grow 2.2% and 21.5% year-over-year to $12.12 billion and $3.42, respectively, for the fiscal year ending September 2024.
The stock has gained 16.3% over the past three months to close the last trading session at $24.62. It gained marginally intraday.
IMBBY’s optimistic fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
IMBBY has an A grade for Stability and a B for Value and Momentum. Within the same industry, it is ranked first.
Click here for IMBBY’s additional Growth, Sentiment, and Quality ratings.
What To Do Next?
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IMBBY shares were trading at $24.60 per share on Thursday morning, down $0.02 (-0.08%). Year-to-date, IMBBY has gained 5.53%, versus a 2.47% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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