Tobacco - the worst of all vices?

Something about tobacco brings out the fanaticism in otherwise tolerant and rational people. As a vice, it does not seem any worse than gambling, alcohol or prostitution. Yet there is a global anti-tobacco movement, while the other vices have not provoked a similar universal hatred.

I was wondering about this puzzle while reading the latest earnings report by Philip Morris International, whose stock performance, along with that of parent Altria, has been stellar. I must confess I am a lousy investor but these cancer-causing pedlars are the few investments which I have no regrets about making. Anti-tobacco activists not only think tobacco companies are evil, but that they are a bad investment. I don't want to argue with the 'evil' bit. But let me recast a famous saying by John Maynard Keynes: tobacco stocks can stay profitable a lot longer than you can keep boycotting them.

Anti-tobacco activists like to produce scientific and complicated data, but in the end they only prove one thing: smoking kills. It kills you and the people around you. While you are dying, society pays for your medical bills - except of course in many poor countries, where most smokers live; society doesn't pay much there, leaving people mostly to care for themselves.

But why invest in companies that face certain decline, already well advanced in rich countries and imminent in poor ones as they get richer and more health-conscious? Well, as the Financial Times puts it, 'perhaps tobacco companies should not be priced to reflect an inevitable decline'. Mainlanders will stop smoking some day, by which time hot stocks like Apple and Google may not be around.

With tobacco stocks, all the bad news is already priced in. With phenomenal pricing power over hapless smokers, the companies consistently increase dividends. Since its spin-off from Altria more than four years ago, PMI has raised its quarterly dividend 67 per cent. Their combined share price has almost doubled since 2005, not counting the free shares in Kraft, the giant food company, that shareholders received from an earlier spin-off. That is about as good as it gets.