The lure of sin stocks: Long-term performance has been good
— -- Q: How would a basket of "sin stocks" have done over the longer term?
A: The stock market's returns have been so lackluster the past decade, some investors might be drowning their sorrows in their beers.
So-called sin stocks, shares of companies in the alcoholic beverage, smoking and gaming industries, have been solid performers this year. Led by big gains of tobacco stocks, sin stocks have been smoking past the broad market.
A big reason behind the run in many of the stocks, especially the tobacco companies, are the relatively large dividends they pay.
But your question is a good one. What about sin stocks during a longer time frame? After all, the recent performance could just be the result of investors going after dividends this year.
Running these stocks and creating the custom index using Standard & Poor's Capital IQ, we show that this sin-dex has outperformed the S&P 500, excluding dividends, in the past one year, three years and ten years. Over the past five years, however, the S&P 500 beat the sin-dex.
And over the long term, the sin-dex has had quite an edge. During that time, the sin stocks have risen more than 60%. During that same time period, the S&P 500 has gained just 10%.
Clearly, the relatively large dividends paid by sin stocks are making them popular with investors looking for yield.
Don't rush out, though, assuming that sin stocks are your ticket to riches. There are big risks. Beer demand in the U.S. has been weak as has the demand for cigarettes. And if the economy does heal, or interest rates rise, many investors will likely be less focused on dividends than they are now.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies and Fundamental Analysis for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at mkrantz@usatoday.com. Follow Matt on Twitter at: twitter.com/mattkrantz
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