If you have ever seen a WW II movie about American GIs you will notice many of them had cigarettes. It turns out, an American General wanted to ensure the GIs had something to remind them of home in their rations. The thinking was if the soldiers were reminded on a regular basis of why they were fighting, the war would end sooner. The rations included a Coke, this helped Coca Cola establish bottling facilities around the world on the government funding. In addition, all the GIs received cigarettes.

One of the consequences of the actions of the General was after the war was over and the GIs came home, they drake Coke and smoked cigarettes more than a previous generation. It was not long ago, a standard piece of office equipment was an astray for people smoked in the office. Smoking has been legal since the British came to America and the native people introduced them to tobacco. Much of the country was founded on growing tobacco for one of the negative aspects of tobacco is the plant uses the nutrients in the soil and if there is no method to add fertilizer, farmers had to move westward to find new farmlands to grow tobacco.

From an investor’s point of view, Warren Buffett said to the effect it is an industry that produces cigarettes at pennies and sells them for dollars and that is an industry I want to be an investor in. It took to close to year 2000 when it was disclosed cigarettes were designed to deliver nicotine to smokers which ensured the smokers would continue to buy as they were addicted to the nicotine. Lawsuits followed and cigarette companies paid fines, could not advertise directly and fewer people smoked, however the companies paid a healthy dividend, and the product is legal. It was not till this year that Phillip Morris company said the effect of raising prices has meant fewer sales as consumers are switching to lower priced cigarettes. (After the announcement, my shares were sold).

All companies do 5 year and more plans, because the number one job of executives is capital allocation to the divisions which will make money to shareholders.

In an article by Emma Rumney of Reuters, the largest cigarette company for global cigarette sales is a company called British American Tobacco (BAT) of London, England. The company is taking a $31.5 billion write down of its US tobacco brands. The executives determined in decades to come the US brands will still be legal and will be selling, but due to a wide range of factors, the brand value will be low. BAT has 5 global brands of Dunhill, Kent, Lucky Strike, Pall Mall and Rothmans. In the US brands include Newport and Camel.

The cigarette companies are some of the leading marketing companies in the world building brands and encouraging consumers to be loyal to them. (if you want to study marketing study the tobacco companies) and the companies have stakes in smoke free solutions including vaping.

It is noted by analysts if you own cigarette company shares directly, they are a very profitable business paying high dividends and the company regularly buying back shares to enhance shareholder value.

Linking to dividend paying stocks, for decades owning shares in cigarette companies came with a very healthy dividend and guaranteed profits even as the companies were paying large fines to the government. Society changes and while smoking is legal, there are fewer people smoking which means the pie is getting smaller. For a number of years, companies could see increase sales in foreign markets but competition is getting harder. There are many good reasons to own shares in cigarette companies but as you plan for 5 years and 20 years down the line at some point you might want to find alternatives for US marketed companies.

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