Dividends With a Side of Sin

While their products may be controversial to some consumers and investors, sinful stocks have been some of the best wealth generators of all time. After all, people tend to continue with their vices no matter what the economy is doing. That sort of staying and pricing power is what dividend dreams are made of. Sin stocks, for the most part, produce ample cash flows as people steadily buy their cigarettes and six-packs each week without fail.

The second piece to sin stocks and their returns comes from the fact that they are “value” stocks by shunning. Institutional managers tend to own fewer shares of sin stocks as their controversial nature makes them unappealing for some larger clients. Regular Joes seem to bypass sin stocks as well—only 1 in 8 portfolios has any sort of sin stock as a holding. Because of this, sin stocks often trade at big discounts to the overall markets and have much larger yields to begin with.

Combine these two facts and you have a recipe for great long-term total returns.

A study released earlier this year by the London Business School shows just how powerful gambling, booze and tobacco stocks can be for portfolios. Researchers at the famed school found that over the past 115 years, U.S. tobacco stocks returned an average of 14.6% annually. This compares to just a 9.6% for all U.S. stocks.

What does that mean in portfolio dollar terms? $1 invested in all U.S. stocks back in 1900 would have turned into $38,255. That’s not a bad return at all—except when you compare it the $6.3 million you would have had if you chose to bet on the tobacco stocks. This echoes similar findings by the “Wizard of Wharton” Dr. Jeremy Siegel that showed that cigarette maker Altria (MO ) has been the greatest performing stock of all time.

Moving out further into the sector, investors have been able to pick up and extra 2.5% a year in returns by investing in sin stocks, such as spirit maker Diageo (DEO ) or slot machine manufacturer International Game Technology (GT) than the broad markets since 1926.

That extra 2.5% a year maybe worth it to investors to abandon their morals for the sake of higher total returns. You could always donate the extra money you make from buying booze, guns and smokes later on.

With various vice stocks clearly being the top dog when it comes to dividends and total returns, investors may want to commit a little mortal sin and dive into the sector. There are numerous individual ways.

In tobacco, Altria, Philip Morris International (PM ), Vector Group (VGR ) and Reynolds American (RAI) are the dominant names. All of them sport better than average dividend yields, strong cash flows and rising sales. That’s despite current smoking crackdowns. Much of their growth is coming from overseas.

Alcohol companies Anheuser-Busch InBev (BUD ), Molson Coors Brewing (TAP ), Boston Beer Company and Constellation Brands (STZ ) pretty much make the vast bulk of the wine, beer and other spirits we drink. Consolidation and rising sales contribute to these firms’ hefty dividends.

Finally, guns/weapons can be bought via Smith & Wesson and gambling via Wynn Resorts (WYNN ) and MGM Resorts International (MGM). While these categories of sin stocks aren’t known for their hefty dividends, they are an important part in the overall sector’s total returns.

Sin is in. At the end of the day, investing our vices can produce some real big total returns. Booze, gambling, tobacco and other sin industries continue to churn out steady cash flows and dividends. Investors may want to forget about their morals and take the low road—and dive head first into the sector.

Get a Complete list of Best Brewers – Beverages Stocks here.