Investing

These 5 Sin Stocks Have Solid Upside Potential and Pay Big Dividends

Lee Jackson

Published: September 23, 2016 8:35 am

Last Updated: January 13, 2020 3:15 am

One of the categories on Wall Street that some portfolio managers really don’t want to discuss in their portfolios is the so-called sin stocks. These are companies that sell tobacco and alcohol products, run gambling casinos, sex-related industries, weapons manufacturers and the military. While at the margin they don’t all seem sinful, some money management companies refuse to own any of them.

We screened our 24/7 Wall St. research database for companies that fall into this rather dubious category, and found five stocks that look like outstanding values. They are all rated Buy at major firms on Wall Street, and they all pay outstanding dividends.

Boeing

This top aerospace industrial is still down over 10% since the beginning of the year, and we recently noted it has been the worst performing Dow Jones Industrial Average stock this year. Boeing Co. (NYSE: BA), together with its subsidiaries, designs, develops, manufactures, sells, services and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight and launch systems and services worldwide. The company operates in five segments: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support, and Boeing Capital.

The Boeing Military Aircraft segment is involved in the research, development, production and modification of manned and unmanned military aircraft and weapons systems for the global strike, vertical lift and autonomous systems, as well as mobility, surveillance and engagement.

Boeing investors receive a 3.31% dividend. The Jefferies price target for the stock is $165, and the consensus target is $149.27. The shares ended trading on Thursday at $131.87.

Diageo

This is one of the largest producers of alcoholic beverages in the world. Diageo PLC (NYSE: DEO) produces, markets and sells beverages worldwide. It offers scotch whiskey, gin, vodka, rum, beer and spirits, Irish cream liqueurs, wine, Raki, tequila, Canadian and American whiskey, Cachaça, and brandy, as well as adult beverages and ready to drink products. The company’s premium brands include Johnnie Walker, Smirnoff, Captain Morgan, Baileys, Tanqueray and Guinness.

Diageo’s reserve brands include Johnnie Walker Blue Label, Johnnie Walker Green Label, Johnnie Walker Gold Label 18 year old, Johnnie Walker Gold Label Reserve, Johnnie Walker Platinum Label 18 year old, John Walker & Sons Collection, Johnnie Walker The Gold Route, Johnnie Walker The Royal Route and other Johnnie Walker super premium brands, as well as The Singleton, Cardhu, Talisker, Lagavulin and other malt brands.

Shareholders receive a 2.73% dividend. Merrill Lynch has a $130 price target. The consensus price objective is $123.15. The shares closed most recently at $116.82.

Las Vegas Sands

While the gaming industry has had a tough year due to issues in Macau, this stock has hung in in reasonably well, although it remains way off highs printed in 2014. Las Vegas Sands Corp. (NYSE: LVS) is the world’s leading developer and operator of integrated resorts. Its properties include the five-diamond Venetian and Palazzo resorts and Sands Expo Center in Las Vegas, Sands Bethlehem in Eastern Pennsylvania and the iconic Marina Bay Sands in Singapore.

Through majority ownership in Sands China, the company owns a portfolio of properties on the Cotai Strip in Macau, including the Venetian Macao, the Plaza and Four Seasons Hotel Macao and Sands Cotai Central, as well as the Sands Macao on the Macao Peninsula.

The stock is trading at the cheapest levels in years, and the company recently reported that June was the first month since September 2014 that Macau mass volumes and revenues have increased. While many on Wall Street remain cautious, the long-term story remains very appealing.

Las Vegas Sands investors are paid a rich 5.07% dividend. Stifel has a $56 price target, and the consensus is posted at $53. But note that the stock closed at $57.17.

Philip Morris International

This company has continued to grow global market share and makes good sense for total return investors now. Philip Morris International Inc. (NYSE: PM) is the world’s leading international tobacco company, with six of the world’s top 15 international brands and products sold in more than 180 markets.

In addition to the manufacture and sale of cigarettes, including Marlboro, the number one global cigarette brand, and other tobacco products, the company is also engaged in the development and commercialization of reduced-risk products (RRPs), the term it uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes. Through multidisciplinary capabilities in product development, state-of-the-art facilities and industry-leading scientific substantiation, Philip Morris aims to provide an RRP portfolio that meets a broad spectrum of adult smoker preferences.

The company reported earnings slightly below estimates, but the full-year underlying guidance remains the same. The analysts expect the second half of the year, especially the fourth quarter, to be very solid.

Shareholders receive a 4.13% dividend. The $115 Merrill Lynch price target is well above the consensus target of $105.46 and Thursday’s closing price of $101.72.

Reynolds American

Reynolds American Inc. (NYSE: RAI) manufactures and sells cigarettes and other tobacco products in the United States. Its RJR Tobacco segment offers cigarettes under the Newport, Camel, Pall Mall, Doral, Misty and Capri brands, as well as Camel Snus, a smoke-free tobacco product. It also manages various licensed brands, including Dunhill and State Express 555.

The Santa Fe segment manufactures and markets cigarettes and other tobacco products under the Natural American Spirit brand. The American Snuff segment provides smokeless tobacco products, such as moist snuff under the Grizzly and Kodiak brand names.

We recently covered the stock in-depth as Jefferies initiated coverage of the sector.

Shareholders receive a 3.77% dividend. Merrill Lynch has a $58 price target. The consensus target is set at $55.27. The stock closed on Thursday at $48.78.

Needless to say, nobody has to invest in something they are personally against. However, if these industries don’t bother you personally, they may have solid portfolio potential, and typically even if the economy gets rocky, they are able to hold their own.