The tobacco industry is well-positioned to grow and expand significantly in the foreseeable future, driven by innovative product launches like e-cigarettes, flavored vapors, heated tobacco products (HTP), and many others. Further, the increasing young generation’s indulgence in tobacco products is driving the market demand.

Given the industry’s rosy outlook, it could be wise to invest in fundamentally sound tobacco stocks Turning Point Brands, Inc. (TPB), Vector Group Ltd. (VGR), and Imperial Brands PLC (IMBBY) this month for solid returns.

Despite the tobacco industry being put under the radar of the highest tax rates, and strict regulations on consumption and sale, it is thriving as its consumers surge with every passing year. As per an estimate, about 28.3 million U.S. adults smoke cigarettes, and more than 2.80 million U.S. middle and high school students consume one tobacco product.

The global tobacco market is expected to reach $627 million in 2024. Further, the market is anticipated to expand at a CAGR of 3.4% during the forecast period (2024-2034), resulting in a market volume of $878 million by 2034.

The market is expected to benefit from increasing chain smokers and tobacco consumers worldwide, the rising young generation population engaged in the consumption of dissolvable tobacco products, and rising trends of low-toxic products. Further, changing lifestyle habits and increasing disposable incomes of consumers are also driving global demand.

Key trends in the tobacco industry include e-cigarettes, heated tobacco products (HTP), custom-made services, and eco-friendly vapers. As the concerns around traditional cigarettes and tobaccos have risen significantly in the recent past, e-cigarettes and e-liquid products have taken over the lead as they appear less hazardous.

With this, the global e-cigarette and vape market size is projected to total $182.84 billion by 2030, exhibiting a notable CAGR of 30.6%.

Considering the industry’s bright outlook, let’s delve into the fundamentals of the three best Tobacco stock picks, beginning with the third choice.

Stock #3: Turning Point Brands, Inc. (TPB)

TPB manufactures, markets, and distributes branded consumer products. The company operates in three segments: Zig-Zag Products; Stoker’s Products; and Creative Distribution Solutions. It markets and distributes rolling papers, tubes, finished cigars, make-your-own cigar wraps, moist snuff tobacco, and other accessories under the Zig-Zag brand.

On February 28, 2024, TPS’s Board of Directors declared a regular quarterly dividend of $0.07 per common share. This represents an increase of 8% over the regular quarterly dividend declared in November 2023. The dividend is payable on April 12, 2024, to shareholders of record on the close of business on March 22, 2024.

TPB’s annual dividend of $0.28 translates to a yield of 0.96% at the current share price. Its four-year average dividend yield is 0.80%. Moreover, the company’s dividend payouts have grown at a CAGR of 8.9% over the past three years. TPB has raised its dividends for six consecutive years.

TPB’s trailing-12-month gross profit margin and EBIT margin of 50.13% and 20.80% are 46.3% and 138.6% higher than the respective industry averages of 34.28% and 8.72%. Further, its trailing-12-month net income margin of 9.49% is 88.2% higher than the 5.04% industry average.

For the fourth quarter that ended December 31, 2023, TPB posted net sales of $97.12 million, and its gross profit grew 1.9% year-over-year to $50.52 million. Its adjusted operating income increased marginally from the prior year’s quarter to $20.95 million. The company’s adjusted EBITDA came in at $24.83 million, up 7.5% year-over-year.

Also, the company’s adjusted net income and adjusted EPS of $15.30 million and $0.79 indicate growth of 15.9% and 14.5% year-over-year, respectively.

As per the outlook for 2024, TPB expects its adjusted EBITDA to be in the range of $95 to $100 million.

Analysts expect TPB’s revenue and EPS for the fiscal year (ending December 2025) to increase 4% and 6.3% year-over-year to $397.85 million and $3.19, respectively. Furthermore, the company has topped the consensus revenue estimates in three of the trailing four quarters.

Shares of TPB have gained 26.9% over the past six months and 37.4% over the past year to close the last trading session at $29.12.

TPB’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

TPB has a B grade for Value and Quality. It is ranked #3 out of 9 stocks in the B-rated Tobacco industry.

In addition to the POWR Ratings we’ve stated above, we also have TPB’s ratings for Stability, Momentum, Sentiment, and Growth. Get all TPB ratings here.

Stock #2: Vector Group Ltd. (VGR)

VGR engages in the manufacturing and selling of cigarettes. The company operates through Tobacco and Real Estate segments. It markets cigarettes under the Montego, EAGLE 20’s, Pyramid, Grand Prix, Liggett Select, Eve, and USA brand names. It also invests in planned communities, condominiums, and mixed-use developments.

On February 15, 2024, VGR’s Board of Directors declared a regular quarterly cash dividend on its common stock of $0.20 per share. The quarterly cash dividend was paid on March 14, 2024, to holders of record as of March 4, 2024.

VGR pays an annual dividend of $0.80, which translates to a yield of 7.30% at the current share price. Its four-year average dividend yield is 7.24%. In addition, the company’s dividend payouts have increased at a CAGR of 24.6% over the past three years.

VGR’s trailing-12-month EBITDA margin and net income margin of 37.57% and 19.57% are significantly higher than the respective industry averages of 11.86% and 5.04%. Also, the stock’s trailing-12-month gross profit margin of 48.93% is 42.7% higher than the industry average of 34.28%.

During the fourth quarter that ended December 31, 2023, VGR’s total revenue was $360.35 million. Its adjusted operating income rose 2.5% year-over-year to $91.60 million. Also, the company’s adjusted net income came in at $57.50 million or $0.36 per share, up 17.5% and 16.1% from the prior year’s quarter, respectively.

In addition, the company’s adjusted EBITDA increased 3.6% from the year-ago value to $96.04 million.

Street expects VGR’s revenue for the third quarter (ending September 2024) to increase 7.6% year-over-year to $391.90 million, and its EPS for the same quarter is expected to grow 3% year-over-year to $0.34, respectively. Moreover, the company has surpassed the consensus revenue estimates in three of the trailing four quarters.

VGR’s stock has surged 2.1% over the past six months to close the last trading session at $10.71.

VGR’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

The stock has a B grade for Value, Quality, and Sentiment. Within the B-rated Tobacco industry, VGR is ranked #2 out of 9 stocks.

Click here to access additional ratings of VGR for Momentum, Growth, and Stability.

Stock #1: Imperial Brands PLC (IMBBY)

Based in Bristol, the United Kingdom, IMBBY manufactures, imports, markets, and sells tobacco and tobacco-related products internationally. The company provides cigarettes, tobacco accessories, heated tobacco, and oral nicotine. It markets products under JPS, Davidoff, West, Winston, Kool, Lambert & Butler, Golden Virginia, Rizla, Skruf, and Zone X brands.

On March 29, 2024, IMBBY paid a final dividend of £0.51 ($0.64) per share to shareholders registered on 16 February 2024, bringing the total dividend for the year to £1.46 ($1.83). This represents a 4% increase to £1.41 ($1.77) per share dividend paid in the previous year.

IMBBY pays an annual dividend of $1.86, which translates to a yield of 8.25% at the prevailing share price. The company’s four-year average dividend yield is 9.07%.

IMBBY’s trailing-12-month gross profit margin and EBIT margin of 36.95% and 17.93% are higher than the respective industry averages of 34.27% and 8.68%. Likewise, the stock’s trailing-12-month levered FCF margin of 11.94% is considerably higher than the industry average of 5.18%.

For the fiscal year that ended September 30, 2023, IMBBY posted revenue of £32.48 billion ($40.89 billion). Its gross profit grew 10.6% year-over-year to £6.68 billion ($8.41 billion). Its operating profit was £3.40 billion ($4.28 billion), up 26.8% from the prior year. The company’s adjusted EBITDA rose 5.6% year-over-year to £4.16 billion ($5.23 billion).

Furthermore, the company’s profit for the year and adjusted earnings per share came in at £2.33 billion ($2.93 billion) and 278.80 pence, up 48.3% and 5.1% from the previous year, respectively.

Over the past month, IMBBY’s shares have soared 4.6% and 12.6% over the past six months to close the last trading session at $22.50.

IMBBY’s POWR Ratings reflect its bright prospects. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

IMBBY has an A grade for Value and Stability and a B for Growth. It has topped the list of nine stocks in the B-rated Tobacco industry.

To access IMMBY’s other ratings (Sentiment, Momentum, and Quality), click here.

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IMBBY shares were trading at $22.46 per share on Tuesday morning, down $0.04 (-0.18%). Year-to-date, IMBBY has declined -0.96%, versus a 9.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...

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