Many years ago and the sentiment is still true John Maxwell an analyst on Wall Street said, the cigarette industry said, only the mint makes more money easily than those little white tubes. As an investor those words are music to the ears, as a person in society you may or may not want to invest. We all know cigarettes sell nicotine with the tobacco which makes them addictive and for some to have health problems. In the book Merchants of Death by Larry White, published by William Morrow, New York, 1988 the industry is examined in a less flatteringly way, but reveals some of the classic elements of monopoly control.

The cigarette industry is dominated by 6 companies – Philip Morris, RJ Reynolds, Brown and Williamson, American Tobacco, Lorillard and Liggett. Although tobacco has been known and grown for as long as the US was discovered by  Europeans  The native Indians were using tobacco and John Rolfe the husband of Pocahontas was the first major grower of tobacco. It was not until 1881 when James Bonsack invented a a machine to produce 120,000 cigarettes a day combined with James Duke’s  understanding what the machine would mean. Mr. Duke tied Bonsack to a series of unbreakable contracts guaranteeing Duke prices and royalities 25% lower than the competition. Duke expanded both by buying smaller companies as well as expanding the market and by 1900 he had an effective monopoly on tobacco.  In addtition, in terms of cost of tobacco, because many of the growers were small farmers, they counted a great deal to the representatives they sent to Washington. As the years went by, the representatives were re-elected and slowly became overrepresented in length of service and being Chair of the committees which run Washington. The clout ensured both the manufactures and growers were given a subsidy and the manufactures received the greatest amounts.

The news is not always good, the height of the cigarette smoking was in 1964 helped by GIs were given free cigarettes during the war. In 1964 people slowly began to try to quit or not smoke, however in 1986 the companies were earning returns in the 20% on their sales. The  money continues to roll in during the 2000’s.

Linking to dividend paying stocks, it is hard to overlook the tobacco companies because the cigarette industry generates billions of dollars and produces a continuing dividend payment not matter what part of the economic cycle the economy is in.

There are more questions than answers, till the next time – to raising questions.