The tobacco sector has been a popular home for investors seeking high dividend yields for many years.
The highly regulated nature of the market and gradually declining smoking trends have driven industry consolidation. High market shares and tight restrictions on marketing have allowed the companies to become extremely profitable and generate substantial cashflows, which have driven strong earnings and dividend growth. Understandably, this growth has led to a re-rating of share prices and UK tobacco stocks are now very popular among income investors as well as analysts generally, with hardly any broker sell recommendations on the two UK-listed stocks. But there are reasons to fear...
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