By Spencer Jakab

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One of the more enduring investing myths is that American companies hate regulation.

They may not like it at first, but onerous rules can be profitable if it's also hard for new competitors to emerge. Just ask any company that's tried to build an oil refinery, pipeline or nuclear reactor in the past few decades.

Even those industries don't hold a candle to one that seemed like it would be regulated and taxed out of existence: tobacco. U.S. smoking rates have dropped steadily since a landmark government report 60 years ago officially pointing out health risks. There are twice as many ex-smokers today as smokers.

Even so, it remains profitable. The best-performing U.S. industry from 1900 through 2015 was tobacco, according to a study of investment returns by Credit Suisse. A one-dollar investment turned into $6.3 million. Yeah, really.

And the top U.S. stock of the past 100 years, based on research by finance professor Hendrik Bessembinder?

Not a tech, drug or energy stock but Altria, formerly Marlboro-owner Philip Morris. It isn't even close. The rise of alternative ways to get a nicotine fix-pouches and other smokeless products-are a tailwind for the industry.

Among the events that could have derailed that performance was a $206 billion industry settlement agreed in the late 1990s with U.S. states and territories in exchange for them giving up future legal claims.

Those payments have turned into a pretty good investment in their own right: More than 20 jurisdictions securitized the future stream of settlement cash into municipal bonds.

They seemed risky since payments are tied to the actual number of cigarettes sold each year and tobacco companies' ability to pay. Over the past 10 years, though, an S&P Global index of tobacco-backed bonds has gained more than two-and-a-half times as much as a muni index overall.

Tobacco stocks have had rough patches, of course, and many investors avoid them out of principle. Even for those who don't, buying a melting ice cube takes a contrarian mindset.

Cash flow and profitability have been more important than customer numbers, though. Altria's return on invested capital this century has averaged 26%, according to FactSet-better than Microsoft. Just since its split with Philip Morris in 2008, it has paid out nearly its current market value through dividends and buybacks.

Tobacco stocks shine in economically uncertain periods like this one. A basket of six global stocks in the sector has produced an average total return of 43% this year.

Fading industries do fade eventually, and this one could someday be pushed over the edge by regulators. Probably not by this administration, though. Despite targeting other industries, Health Secretary Robert F. Kennedy Jr., a personal fan of nicotine pouches, has let tobacco off the hook so far.

Less regulation almost seems like it could be a bad thing.

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

(END) Dow Jones Newswires

September 11, 2025 06:52 ET (10:52 GMT)

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