If you own a conventional dividend company—let’s go with Colgate-Palmolive as an example—there are three techniques (buybacks, volume growth, and raised prices) to raise profits that principally flow from two sources (the volume growth and raised prices). In other words, if you sell toothpaste, the way you make higher profits is by increasing the amount of toothpaste you sell and/or raising the cost you charge your customers for each tube. If you do at least one of those successfully, you might also engage in a stock repurchase program that destroys some of the ownership units so that the remaining shares can lay a greater claim on profits.
In the case of tobacco stocks, you only have one tool in your arsenal: raising the price per pack of cigarettes. Selling more of the items is not an option, as smoking rates have been declining in the United States since the 1980s. … Read the rest of this article!