And Odd But Perhaps Correct Theory

I have been ditching some of my low yield paper lately and shifting to high dividend stocks. The stocks I have been buying are cig companies – MO and RAI. The yields on these stocks are incredible right now, and are even more impressive with the recent drop in the stock prices of both (along with every other stock). Cig companies have extremely high margins, great ca$h flow, and MAN do they pay the dividends. Yes I realize those divs are taxed at normal income rates, but right now, what is your great idea on keeping up with inflation? Why own sovereign or corporate paper when cig companies are paying six or seven percent?

My odd theory is that if cig companies go under, the whole world will be at war for lack of smokes and we should all buy canned foods; everyone in Europe and Asia smokes, and tons of the young club going crowd also does here in the US as observed by highly detailed research by Carl and myself. Laugh if you want, I will collect my 7%.


  1. As far as taxes, the dividends are treated much better than interest income. You are taxed at only a 15% rate (if you ignore the double tax on the corporation itself, which isn’t your problem by the time it gets down to you). Interest income is treated as “ordinary income” which can be extremely painful depending on your marginal income rate but generally in the 30%+ range. Municipal bonds that are eligible for tax free treatment have lower rates but yields usually stink or their credit quality is lower.

    Plus dividends generally go up on an absolute dollar basis every year and there is obviously the chance for stock appreciation or depreciation.

    The cig companies look like they can keep paying dividends on their cash flow a while; they understand that their value is pretty much all included in the cash that they pay out to investors so they focus on it.

    By contrast the banks all whacked their debt and even Verizon wouldn’t be able to pay much of one if not for the cellular windfall; their wire line business doesn’t have much cash flow at all.

    Thanks for posting here sometimes I believe it is just me talking to myself.


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