Smokeless Tobacco Players: Who Will Come Out On Top?

Often overlooked, the smokeless tobacco industry still has some long-standing growing power. We’ll explore two top players in the U.S. market, and try to decipher who’ll come out on top in the headwinds an economic slowdown- and realize that taxes and political pressures also face the tobacco industry as a whole.

First,  UST, Inc. (UST) is your essential vice stock as the holding company for two principal subsidiaries: United States Smokeless Tobacco Company and Ste. Michelle Wine Estates. UST produces and markets the premium brands of ‘dip’ – Skoal ® and Copenhagen ®.

Q1 2008 sales in the tobacco segment grew 1.7% year over year, while operating profit added 3.8%.

There is no question it has a problem with growth drivers. This needs to be addressed before I would contribute my personal capital to the company. While Skoal has been rolling out various new brands of dip- including mild flavors like Citrus Skoal- designed to both convert smokers and add new younger consumers to its base. An older article I read on SeekingAlpha.com pointed out something that holds true today: It may be in UST’s best interest to diversify beyond tobacco and explore joint ventures and acquisitions. In fact, its winery division grew 25% on extremely high volume last quarter.

If we pull up the 6 month chart, we clearly see a trading range set up from $52 to $58.


Even if it continues to be bound to the range, its 4.6% dividend yield should please any investor and negate the price swings, especially on the ex-dividend dates. After all, many investors hardly look to tobacco stocks for fast money.

In an April 2008 article on MSN Money USSTC president Daniel W. Butler said:

This marked the seventh consecutive quarter of premium volume growth. I am especially pleased to see that despite a challenging economy and new price value entrants, premium volume trends remain strong and there has not been an acceleration in the price value segment.