Happy Valentine’s Day. The gift today is learning so you can do actions which can reward your spouse, family and extended family.

Tobacco stocks over 20 years gave investors a total return of more than 1,800% making it the best performing stocks in the S&P 500.

According to David Berman the lessons all investors can learn are:

An unpopular stock is not a bad stock.

Similar to most people you likely have a opinion on smoking – good or bad. The objective in investing is to look at results. Through diversification, consolidation with rivals and steady price increases, tobacco companies have done very well. Altria reported a profit of nearly $5.8 billion in 2016 up from $4.2 billion in 2011. The current goal is to increase profits 7 to 9% a year.

Valuation matters

Amazon trades at a price to earnings ratio of 348%, Altria trades at 22.6 times profit. If and when the market goes down which stock will be affect more?

Dividends rule

Investors stick with tobacco stocks for the dividends: Altria has increased its dividends 51 times in 48 years and the quarterly payout has doubled since 2009.

Brands are moats

It is inexpensive to produce cigarettes, however it is very expensive to market them. Government regulations make it hard for newcomers. This means cigarette buyers keep buying the same brand.

Long term performance is what matters

There is always a short term negative about cigarettes. If the large tobacco companies have managed to deal with a $200 billion fine over 25 years and keep profitable, then the other concerns are important short term concerns but not long term which allows for continuing outstanding returns for the shareholders.

Linking to dividend paying stocks, cigarette companies are ideal because they fit into types of companies you are looking for to hold long term. Consistently profitable, able to raise prices, government helps to keep competition out and established companies are the go to. There are other companies in other industries that can fit the bill, but tobacco stocks are easy fit.

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