Tech is the New Tobacco for Dividends

In their hunt for yield in a seemingly yield-less world, investors had bid the price of most tobacco stocks to levels that no longer made sense. Tobacco is a no-growth business and an industry in terminal decline. As a case in point, American teenagers are more likely to use illegal drugs that to light up a cigarette. By Wall Street Journal estimates, the forward P/E on the S&P 500 is 13.5. Philip Morris International (PM) is significantly more expensive than that, and Altria (MO) and Lorillard (LO) are essentially at the same valuation.

Meanwhile, take a look at the technology stocks at the bottom of the chart. Intel (INTC), Microsoft (MSFT) and Cisco Systems (CSCO) all trade for 10 times or less expected earnings, and all have modest dividend payouts with plenty of room for growth. They pay a little less in dividends than tobacco stocks…but not that much less. And their dividend growth rates are comparable (with the exception of Cisco, whose growth rate is off the charts).

Source: Guru Focus

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