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Investing in Sin Stocks

Ciggie Sin stocks are stocks of companies involved in the distribution or production of alcohol, tobacco, weapons, or gambling. Some people might not prefer to invest in such businesses as they find it unethical and argue that by investing in such stocks, they are helping to fund the wrong activities the companies are engaging in.

On the other hand, sin stocks can be deemed as recession-proof businesses. People may cut back on superfluous spending like buying of luxury goods during an economic crisis but this does not necessarily mean that people will drop their bad habits during difficult times. In fact, people may be inclined to smoke, drink, or gamble more to “escape” from the hard realities of life during such times.

Sin stocks are also usually proven businesses with very stable free cash flows and high dividend payouts.

In the United States, there are many such sin stocks listed; including Anheuser-Busch Inbev, Heineken NV under alcoholic beverages, Smith & Wesson Holding Corp under weapons and firearms, Philip Morris International and Altria Group Inc under tobacco, and Las Vegas Sands, Wynn Resorts, and MGM Resorts under gambling. Even some prisons are listed in the US. These companies include Corrections Corporation of American, Avalon Correctional Services and The GEO Group.

In Singapore, we do not have as extensive an array of listed sin stocks as in the US, but you can still find them on the SGX. Two of the sin stocks listed include Thai Beverage Public Company Limited (SGX: Y92) under alcohol and Genting Singapore PLC (SGX: G13) under gamblind. These stocks are also incidentally part of the Straits Times Index (SGX: ^STI) as well. One other STI component stock which has since been de-listed and which also belonged to the sin stocks category was Asia Pacific Breweries (APB). APB has since been bought over by Heineken NV end of 2012.

Thai Beverage is the producer of the famous Thai beer, Chang Beer. Football fanatics would have seen the Chang beer logo on the jerseys of Everton Football Club as the main sponsor. Other than Chang Beer, Thai Beverage also has Archa Beer and Federbräu beer in its stable. Thai Beverage also sells spirits and non-alcoholic beverages. The net profit margin for Financial Year 2012 was at 10.7% and the ROE was at 20.3%. The dividend yield stands at 2.9% and its PE is at 12.9, as of the close of June 25th 2013.

Genting Singapore owns Resorts World Sentosa in Singapore and it operates the casino there as well. Genting’s debt is 16.6 times its 2012 net profits. The dividend yield stands at 0.8% and its PE is at 27.6, as of the close of June 25th 2013.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.