4 High Yield Tobacco Stocks Benefiting From FDA's Recent Decision

On Friday, after tobacco companies were anxiously awaiting a report from the Food and Drug Administration, it was reported that the FDA would not ban menthol cigarettes. The news caused several of the cigarette stocks to rise. Lorillard, Inc. (LO) rose by over 10% for the day.

Some investors have strong feelings against investing in cigarette stocks, but if you don't, you should consider them for their extremely high yields. Lorillard has a payout of 6.6%. The stock, which markets the Newport, Kent, True, Maverick, Old Gold, and Max brands, trades at 11.6 times forward earnings. According to WallStreetNewsNetwork.com, there are over half a dozen tobacco stocks with yields in excess of 4%.

Another example is Vector Group Ltd. (VGR), a Florida based tobacco company that has many brands of cigarettes including Liggett, Grand Prix, Eve, Pyramid, USA and nicotine-free Quest. The stock has a price to earnings ratio of 23.7, and pays a yield of 9.3%.

Reynolds American Inc. (RAI) makes and markets cigarettes and other tobacco products including the Camel, Kool, Pall Mall, Doral, Winston, Salem, Misty, Capri, Dunhill, and Natural American Spirit brands. The stock has a forward PE ratio of 11.8, and pays a yield of 6.3%.

Altria Group Inc. (MO) is a Virginia based company that makes and markets cigarettes, cigars, and beer. It is the largest cigarette company by market cap in the US. The stock has a forward PE of 11.3, and pays a yield of 6.1%.

Brookfield's U.K. unit buys Pall Mall business

Brookfield Investment Management (UK) acquired the European high-yield fund management business of Pall Mall Investment Management.

Terms weren't disclosed.

A team of five investment professionals and roughly $370 million in assets from Pall Mall will go to Brookfield. The team, led by Curt Schibli and Jonathan Goble, both managing directors and portfolio managers, run Pall Mall High Yield Europe Plus, an institutionally focused fund, according to a news release. The fund's name was changed to Brookfield High Yield Europe Plus.

Brookfield spokeswoman Alice Olive said the London team will allow U.S. parent Brookfield Investment Management to expand its U.S. high-yield capabilities and to pursue global strategies as well.

Lorillard Responds to Menthol Recommendation

Last week the Food and Drug Administration's (FDA) Tobacco Products Scientific Advisory Committee (TPSAC) determined that there is scientific evidence to back up the notion that removing menthol cigarettes from the market would benefit public health in the United States.

Meanwhile, Lorillard Inc. said in a press release that TPSAC members concluded that the removal of menthol cigarettes from the marketplace would benefit public health — despite the fact that they found there was no difference in disease risk between smokers of menthol cigarettes and smokers of non-menthol cigarettes.


TPSAC did acknowledge that the potential for an illegal market in menthol cigarettes exists and therefore noted that the FDA should consult with appropriate experts should it decide to take policy action that restricts the availability of menthol cigarettes.


"While we fundamentally disagree, we are not surprised by what we believe is TPSAC's unsubstantiated conclusion relative to the impact of menthol cigarettes on public health," stated Murray S. Kessler, chairman, president and CEO of Lorillard. "Most importantly, TPSAC's report is just the first step in what we believe will be a very long process that ultimately does not result in the removal of menthol cigarettes from the marketplace, especially when contraband and other unintended consequences are seriously considered."


Dr. Lawrence Deyton, Director of FDA's Center for Tobacco Products, stated that TPSAC's recommendation is simply advice and does not set FDA policy or action and that the FDA would conduct its own review. The advisory committee recommendation is not binding and the FDA is not obligated to take any regulatory action whatsoever.


Lorillard believes that as the FDA conducts its own assessment of menthol, it will follow a rigorous scientific evaluation that will come to the same conclusion as the Industry Report on Menthol. The report clearly demonstrates that a menthol cigarette is no more dangerous than a non-menthol cigarette and should be regulated no differently and further, that the countervailing effects of any restriction in availability would overwhelm any potential public health benefit. The Industry Report will be formally submitted to the FDA by their deadline of March 23, 2011.

Background: As part of the Family Smoking Prevention and Tobacco Control Act, TPSAC was created as an advisory committee to the U.S. Food and Drug Administration (FDA) to issue a non-binding report and make recommendations on the issue of menthol's impact on the public health by March 23, 2011.

Brookfield acquires European high yield fund management business of Pall Mall

Brookfield Investment Management (UK) has acquired the European high yield fund management business of Pall Mall Investment Management.

The acquisition encompasses Pall Mall's high yield business, which manages corporate high yield securities on behalf of institutional clients and German financial institutions.

It also includes the fund, $305m Pallmall Funds ICVC, which has been renamed as Brookfield Funds ICVC. With an 11-year track record, the Pall Mall silver High Yield Europe Plus Fund, a sub fund of Pall mall Funds ICVC.

The team of five investment professionals from Pall Mall will join Brookfield Investment Management (UK) and they will be led by Curt Schibli and Jonathan Goble.

Pall Mall operates in London and Germany.

Brookfield Investment Management the CEO Kim Redding said that this acquisition represents a strategic opportunity to extend the existing high yield business into a global asset class.

"Exploiting the expected growth of the global high yield bond market is a key priority for Brookfield Investment Management and the integration of Pall Mall's high yield business is a significant part of that effort," said Redding.

State to return tribe's cigarettes

The Nebraska Department of Revenue has returned nearly $14,000 worth of cigarettes seized last week from the Ponca Tribe, a tribal official said Monday.
"I'm pretty stoked," Ponca Chairwoman Rebecca White said. "They were flat out wrong."
Revenue Department spokeswoman Deepa Buss confirmed Monday that the state would be returning the tribe's cigarettes.
A statement posted on the Revenue Department website said that after further research and discussion with the offices of the Nebraska attorney general and the U.S. attorney, "the department will be returning the improperly seized cigarettes to the Ponca Tribe of Nebraska this afternoon.
"Tax Commissioner Doug Ewald, has been in direct communication with Rebecca White, chairwoman of the Ponca Tribe of Nebraska. On behalf of the department, Commissioner Ewald apologized to Chairwoman White and the tribal council of the Ponca Tribe of Nebraska."
Revenue Department representatives entered the tribe's Ponca Smoke Signals shop in Niobrara at about 11:40 a.m. Thursday, according to White. She said they informed the shop's manager that the shop had failed to affix its cigarette packages with a state cigarette tax stamp and began packing up the store's entire inventory of cigarettes.
The tribal smoke shop is on federal trust land owned by the tribe. The shop sells only Native-manufactured cigarettes and affixes its own tribal stamp on each carton, White said. She said the seizure violated the tribe's sovereign immunity.
A cigarette tax stamp is placed on each package of cigarettes sold in Nebraska as proof that a distributor has paid the state's cigarette tax, according to the Revenue Department's website. However, the Ponca Tribe is not required to pay taxes to the state for the cigarettes it sells, as it is a sovereign nation, White said.
The tribe's Niobrara shop opened in October and is the tribe's second smoke shop. The other, also named Ponca Smoke Signals, opened in December 2009 in Carter Lake, Iowa. The shops sell only tribal-manufactured cigarettes, including Seneca, Signals, Smokin Joes, Sky Dancer and Buffalo brands.
The tribe lost its federal recognition in the 1960s but regained it in 1990. The Poncas do not have a reservation, but they do have service areas spread across 15 counties in Nebraska, Iowa and South Dakota.
White said the Revenue Department's decision to apologize and return the cigarettes "is our first step for having the state understand what federally recognized land in trust means and how our service areas are and should be recognized as reservation land."

Middle East unrest hits FTSE, helps energy stocks

Unrest in the Middle East and North Africa hit Britain's top shares again on Thursday, though rising crude prices and upbeat comment from oil major BP on its Indian activities lifted energy stocks.

The FTSE 100 closed down 3.55 points, or 0.1 percent, at 5,919.98, pinned just below a seven-month technical support level of 5,920.

U.S. crude oil futures rallied for a third session on Thursday as prices soared to their highest since late August 2008 as escalating violence in Libya sparked supply worries. Tullow Oil added 3 percent.

BP's Indian head, Sashi Mukundan, estimated there were 15 trillion cubic feet of gas resources in the 23 blocks it has bought into in its $7.2 billion deal with Reliance Industries, and there could be more.

BP gained 0.9 percent on the news, which also helped spark a 2.4 percent rally in oil explorer Cairn Energy.

Cairn Energy, which has blocks in India, is currently trying to sell a majority stake in its Indian arm Cairn India to Vedanta Resources.

However, weakness from risk-sensitive banks helped keep the index in the red for a fifth session.

It is down 2.7 percent so far this week, on track for its biggest weekly drop in nearly eight months as the price of oil has hit multi-year highs, threatening to derail the global economic recovery.

"Oil is the lubricant of economic expansion, and its rising price acts as a tax on global growth, which is making investors risk averse and encouraging them to book profits," said Henk Potts, strategist at Barclays Wealth.

The FTSE volatility index, which measures investor appetite for risk, is up 35 percent this week.

BANKS SAG

Banks were the most significant drag on the index, as investors looked uneasily at the unrest in the Middle East and North Africa.

RBS came off worst, down 3.6 percent, as its results met with disappointment.

Bad debts from Ireland, an uninspiring investment banking performance and lack of dividend put pressure on the shares, traders said.

British American Tobacco fell 0.7 percent, after the maker of Kent, Dunhill, Lucky Strike and Pall Mall cigarettes reported full-year results.

"(The numbers) all looked in line, the dividend was slightly better than expected, and (it announced) a 750 million pound buyback, but the market expected 1 billion, so that was a little disappointing," said Alwyn Phillips, a trader at IG Index.

GKN shed 2.3 percent after Citigroup cut its rating for the automotive and aerospace parts group to "hold" from "buy" ahead of upcoming full-year results.

"We sense a pause in the pace of its recent rapid profit rise," Citigroup says in a note.

Profits are up but investors seem disappointed.

Tobacco has been a popular defensive play during the recession but could it be time to kick the BATS habit?
While full-year figures from the cigarette maker were largely in line with analysts' expectations, they were hardly smoking hot. Sales volumes were down and the shares dipped by just over 2% in the morning's trade.
Group revenues for 2010 rose by 5% to £14.8 billion and profits increased to £4.4 billion (from £4.1 billion in 2009), bolstered by the acquisition of Bentoel in Indonesia and favourable currency fluctuations. Stripping out this currency benefit worth £239 million, organic revenue increased by 3%.
Smoke gets in your eyes
However, during the year, cigarette volumes fell by 2 per cent to 708 billion compared to 2009.
British American Tobacco (LSE: BATS) is being hit by a toxic combination of excise hikes and growing unemployment in a number of its markets which have boosted sales of black market cigarettes. Where consumers have less disposable income, management says they are more likely to buy illegal products to save money.
The market in illicit tobacco is a particular headache for BATS in Romania. Incoming chief executive Nicandro Durante, currently chief operating officer who takes over from Paul Adams next month, calls the black market trade 'a growing threat'.
What's more, while BATS supports the World Health Organisation's Framework Convention on Tobacco Control, Mr Durante fears that certain measures, such as hikes in excise duty and plain packaging, could 'play into the hands of organised crime'.
Growth across BATS' five regions -- soon to be cut to four -- was mixed.
A strong performance was seen in Africa and the Middle East, where profits rose by £134 million to £858 million, the Americas, where profits were up by £196 million to £1.4 billion, Asia Pacific and even Western Europe. However, profits in Eastern Europe fell by £51 million to £358 million due to falling volumes and adverse currency.
Volumes were also down in South Africa where further black market activity was seen, although profits were offset by higher pricing. In terms of the brands, Lucky Strike grew volumes by 2%, Pall Mall by 8% and Dunhill by 18%, although both Pall Mall and Lucky Strike also experienced declines in some of their main markets.