What Are Sin Stocks?
Whilst some investors screen potential investments according to their Environmental, Social and Governance (ESG) factors, others have fewer such concerns when it comes to investing.
In this article, we will examine sin stocks, providing a sin stock definition, as well as looking at the advantages and disadvantages associated with such investments. We will also provide examples of 3 of the top sin stocks to watch.
Table of Contents
What Are Sin Stocks?
Sin stocks represent the shares of companies which are engaged in, or associated with, sectors considered by some to be immoral.
Whilst proponents of ethical and socially responsible investing seek investments which tend to provide a benefit to society, sin stocks are often perceived as profiting from human weakness and vice.
Traditionally, the sectors associated with sin stocks include alcohol, tobacco, weapon manufacturers, adult entertainment and gambling. However, what is and is not “sinful” is fairly subjective and, therefore, people’s perceptions of sin industries can vary.
For example, fast-food chains usually escape the label of sin stock, but considering that their unhealthy products directly contribute to the growing levels of obesity throughout the world, some may argue that they should be categorised as such.
Top Sin Stocks to Watch
So, now we know what a sin stock is, what are the top sin stocks to watch? In the following section, we will highlight three possible options from different industries.
| Philip Morris International |
| MGM Resorts |
| Constellation Brands |
Philip Morris International
Smoking is in long-term decline, however, due to the addictive nature of their product, tobacco companies are able to raise prices to compensate for falling demand, allowing them to continue generating large amounts of cash.
Philip Morris is the largest tobacco company in the world by market capitalisation, almost twice the size of its largest competitor at the time of writing.
Like the other big tobacco companies, in the face of falling demand, Philip Morris has begun to diversify away from cigarettes, expanding into next generation products. These next generation products include heat-not-burn tobacco products and oral nicotine pouches, both of which have experienced high levels of growth in recent years.
Many sin stocks have a reputation for rewarding their shareholders with generous capital returns. Philip Morris definitely falls into this category. Since it was spun off from Altria in 2008, Philip Morris International has raised its dividend every year, with payouts increasing by a total of 186.6% by the end of 2023. At the time of writing, Philip Morris has a dividend yield of 4.6%.
MGM Resorts
MGM Resorts operates an empire of casinos and resorts around the US, primarily on the Las Vegas Strip, but also in Atlantic City, Maryland, Mississippi and several other locations.
As well as its operations in the US, MGM Resorts also owns a 56% stake in two casinos in Macau, China. Nevertheless, the vast majority of MGM’s revenue is generated in the US, with the Las Vegas Strip accounting for 54% of total revenue in 2023.
MGM Resorts no longer pays dividends to its shareholders. However, it still returns capital to shareholders through a fairly generous share buyback programme. In 2023, the company repurchased $2.3 billion of its own stock, down from $2.8 billion worth of stock the previous year. In November 2023, the Board of Directors a further $2 billion stock repurchase plan.
To put those buyback numbers into context, at the time of writing, MGM Resorts has a market cap of around $11.2 billion. In fact, in May 2024, MGM announced that since 2021, it had reduced its share count by 36%.
As well as reducing the number of shares outstanding, stock repurchases signal that management is confident in the business and believe that its shares offer good value for money.
Constellation Brands
Moving on from tobacco and gambling, now we turn our attention to another of the traditional sin stocks, alcohol.
Whilst you may not have heard of Constellation Brands, you may be familiar with some of its beers, such as Corona and Modelo, both of which it owns the distribution rights to in the United States. Besides beer, the company also has a range of wine and spirit brands in its portfolio.
Constellation Brands has paid and increased dividends to shareholders each year since dividend payments began in 2015. At the time of writing, the stock currently has a dividend yield of 1.7%.
Sin Stock Advantages
Although some investors may be morally adverse to investing in sin stocks, we can identify a couple of benefits associated with doing so.
Firstly, due to the fact that sin stocks are overlooked by many investors because of their negative perception, they can become undervalued. In other words, their share price is not always reflective of the value which they offer shareholders.
There are many well-established companies which operate in sin industries, have strong financials and pay generous dividends to their shareholders. However, this is not always mirrored in their price.
Secondly, demand for the products and services which these companies produce tends to be inelastic. This means that consumers will continue to buy them regardless of the economic climate or other factors which may usually affect demand. Consequently, many sin stocks can be recession resistant, at least when compared to other stocks.
Disadvantages of Sin Stocks
As well as providing some advantages for investors, sin stocks also come with several clear disadvantages.
Due to their nature, sin stocks face greater political and regulatory risk than other investments. They tend to face a constantly evolving regulatory landscape, as lawmakers attempt to dissuade consumers from buying their products.
Furthermore, companies which operate in sin industries can be subject to increased taxation by the government. This tax is intended to be a further method of discouraging consumers, however, it also helps to generate tax revenue which can be used to combat negative societal effects generated by consumption of the product.
How to Invest in Sin Stocks
With an investing account from Admiral Markets, you can buy shares in both of the companies examined in this article. In order to start investing, follow these steps:
- Open an Invest.MT5 account and log in to the Dashboard
- Open the web trading platform
- Search for your desired asset on the right-hand side of the screen
- Click ‘Create New Order’ at the bottom of the screen, enter the number of shares you wish to purchase and click ‘Buy’ to send your order to the market.
Investing With Admiral Markets
With an Invest.MT5 account you can invest in over 4,500 stocks and more than 200 Exchange-Traded Funds(ETFs)! Click the banner below in order to open an account today:
FAQ
Are sin stocks recession proof?
Whilst no stock can be definitively labelled as “recession proof”, sin stocks do have qualities which can make them resistant to the effects of an economic downturn. Primarily, the type of goods and services that sin stocks usually produce tend to be able to rely on fairly consistent demand throughout all stages of the economic cycle.
Are sin stocks undervalued?
Due to their negative perception, and consequential lack of demand, amongst some investors, sin stocks can sometimes find themselves undervalued by the market.
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