Large tobacco stocks drop as US FDA eye ban on menthol cigarettes.
Tobacco stocks go up in smoke as they tumble to the bottom of the FTSE
- The Wall Street Journal cited this weekend that the US FDA is considering a ban on the sale menthol cigarettes
- Tobacco stocks have long been a favourite of UK equity investors, but this morning two of the largest, BAT and Imperial Brands, fell by 8% and 3% respectively
- We maintain our ‘buy’ recommendation for Imperial Brands as we do not anticipate the ban to impact as negatively as BAT, which is currently listed as a ‘hold’ but will be reviewed.
Tobacco stocks have been hit today by reports over the weekend in the Wall Street Journal that the US Food and Drug Administration is considering a ban on menthol cigarettes.
BAT now owns the Newport brand of cigarettes, one of the most popular menthol products, thanks to its $49bn acquisition last year of RJ Reynolds.
It must be emphasised that at this stage these reports are still rumours and they make it clear that it would take some time to draw up the ban and then implement it. However, they follow the news in October that the FDA is planning to crack down on the growing use of e-cigarettes by young people.
Both BAT and Imperial Brands have been attractive to investors for many years mainly for their progressive dividend policies and they have dividend yields of 6.4% and 7%, well above the average for the FTSE 100. We currently recommend Imperial Brands as a ‘buy’ for medium risk income seekers and it should not be as affected by a ban as BAT which we recommend as a stock to ‘hold’, but we have placed that under review.
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