Tobacco Stocks: Not for the Nervous Investor

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In a turbulent investment climate such as this, one of the oldest hedges against economic downturns emerges -- it also happens to be among the most maligned of businesses. Smokes. But those seeking relatively high dividend yields by investing in tobacco stocks should be aware that their returns come at a price.

Tobacco products, because of their addictive qualities, remain a relatively unscathed market even in uncertain economic times. And with the market ups and downs, these businesses could even see an increase in sales from smoking clientele looking to quell their nerves.

However, the steady cash returns from tobacco stocks come with some tradeoffs:

• They offer limited growth prospects, especially as tobacco customers die off (as smokers tend to suffer greater death rates actuarially than nonsmokers).
• These stocks represent investments in what some refer to as a "sin" sector, eschewed by "socially responsible" portfolio managers.
• These stocks' companies stand in the crosshairs of some former-customers-turned-angry-plaintiffs as well as tax-hungry legislators.
• Anti-smoking forces have been taking aim at retail distribution of cigarettes as well as venues for smoking and advertisements that they claim are targeting youth to replace the base of mature smokers.

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