Home » sin stocks » Sin Stocks Report: Summer Of Sin #7 — What Are Sin Stocks Returns Like?

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Every investor invests for one thing: returns. If you are investing for any other reason, get out of the market right now and put your money under the mattress or buy some flowers for your mom. The rest of us invest for returns. Therefore, one of the most important questions that any investor should ask is: What are sin stocks returns like?

What Are Sin Stocks Returns Like?

Returns. Return on investment (ROI). It’s the money you make by being in the market. It’s the profit of your investing.

As an investor, returns come in a couple of ways:

Growth (or Appreciation or Capital Gains). This is where you make money on the difference between the purchase price and the sale price of your stock. For example, let’s say you buy XYZ company for $10.00/share and you sell it for $12.00/share, your returns are $2.00/share.

Income (or Dividends or Distributions). This is where you make money distributed to you from the company based on the number of shares you own. For example, let’s say you own 10,000 shares and the company pays $0.05/share. So they would pay you $500.00 every distribution period.

This is the basic concept of how you get returns. And whether specific returns are good or bad ultimately depends on you. Some people want big fat returns so they can enjoy a gold-plated retirement of yachting and eating caviar. Most people hope for steady returns in their early years and then, by retirement, they just want their returns to keep up with inflation.

However, that’s not really the answer you want, is it? You’re probably like, “C’mon dude. Quit beating around the bush. Tell me what sin stocks returns are like? What can I expect if I invest in sin stocks?”

The way to answer that is to tell you what sin stocks are like relative to the rest of the market.

It’s also important to note here that we’re only reporting on the historical performance of sin stocks in general. Be aware that there are outliers — including stocks that dramatically overperform the numbers here and stocks that vastly underperform. And the only way you’ll navigate your own way through is by doing your due diligence first.

So, let’s talk about sin stock returns relative to the market. (Because, when we know what the average market benchmark is, we’ll be able to see how sin stocks performed, and whether we would have benefited with them in our portfolio.)

According to an article published on The Street, and reported by Wharton Professor Jeremey J. Siegel in his 2005 book The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New, cigarette stock Altria (MO) found THE stock with the highest returns between 1925 and 2003, returning an average of 17% per year during those 78 years. (Source: https://www.thestreet.com/story/13606834/1/4-sin-stocks-that-reward-investors-with-their-heavenly-dividends.html)

The same article at The Street also lists reasons for investors to consider other sin stocks as well because of high dividends, excellent market position, and more.

That’s just one example of one stock that is worth noting. But what about other sin stocks, or the whole category of sin stocks in general?

Karita Troberg, in a Master’s thesis published in spring 2016, mentioned that most studies of sin stocks were focused on American sin stocks, so Troberg studied European sin stocks. Troberg, quoting other research, found that sin stocks were vastly undervalued in the market for some time, and that the market had not not corrected for it. Most significantly, Troberg compared a basket of comparable “market portfolio” stocks against a basket of European sin stocks for a period between 2000 and 2015 and found that both sets enjoyed positive returns but sin stocks earned “abnormal excess returns” with the market portfolio stocks earning 43% LESS than the sin stocks. And, quoting another study by Salaber, Troberg pointed out that “[sin stocks] outperform the overall market during bad times”. (Source: http://epub.lib.aalto.fi/en/ethesis/pdf/14713/hse_ethesis_14713.pdf)

And focusing on American and international sin stocks, Yale professor Frank J. Fabozzi found that the average sin stock returned more than 19% per year between January 1970 and June 2007. (Source: http://gyanresearch.wdfiles.com/local–files/alpha/JPM_FA_08_FABOZZI.pdf)

And in a study conducted by professors at NYU and Princeton, published in Journal of Financial Economics, and reported by Forbes, investors who invest in sin stocks enjoy a greater gain of 2.5% per year ABOVE the returns enjoyed by those who invest in comparable stocks in other industries. (Source: https://www.forbes.com/2009/10/21/sin-stocks-outperform-personal-finance-sin-stocks.html)

And remember, we’re not just talking about growth here but also about income generated from dividends. Many sin stocks pay dividends. Sure, they’re not paying ridiculously volatile and short-lived dividends that energy companies and penny stocks pay, but sin stocks often pay consistent dividends (and they tend to stick around longer than energy companies and they raise their dividends). The GEO Group (GEO) is among the highest of the dividend-paying sin stocks with a dividend yield of 5.67% (at the time of this writing). Other sin stocks have a dividend yield of 2% to 5%. (Source: http://www.dividend.com/dividend-stocks/high-dividend-yield-stocks/)

A Google search for “sin stocks that pay dividends” will show you some top picks for which companies are paying dividends and how much they’re paying.

Look, everyone wants a definitive answer to say that sin stocks have massive returns and you should invest all of your money in them. But you’re not going to get that from anyone. Because smart investors realize that the true value of returns is not actually in the money you can make but in how it matches with each investor’s personal investing goals and timeline.

That said, research shows that sin stocks tend to out-perform the market year after year.


Nothing on this site is a recommendation because, hey, I can't read your mind and I don't know what you have in your portfolio, and I'm not a licensed financial advisor. So never EVER trade without doing your due diligence. If you want more information about this fascinating topic, please check out the Sin Stocks Disclaimer page which basically says the same thing but more emphatically.