Tobacco stocks will be hit with a £150 million windfall tax to fund the NHS if Labour wins the next election.
When the medical profession first revealed the damage cigarettes do to users' health, it was predicted that the world would stub out on mass. But fast forward two decades later global revenue streams have grown in that time, as emerging market consumers adopt the 'Western' pastime.
The latest challenge to the tobacco industry - electronic cigarettes - is actually proving to be another opportunity for profit. British American Tobacco rolled out its new Vype e-cig in the United Kingdom last year - the first kind of product diversification in almost a century.
Several of the largest and most successful UK equity income funds own tobacco stocks, including Neil Woodford in his Woodford Equity Income fund. British American Tobacco (BAT) is the third largest holding at 5.74% and Imperial makes up 5.72% of the fund.
This is because tobacco companies are among the highest yielding in the FTSE, with Imperial Tobacco (IMT) paying more than 4%.
Imperial also makes up 5% of Threadneedle UK Equity Alpha, 4.83% of Invesco Perpetual High Income and 4% of Fidelity Moneybuilder Dividend.
The £2.7 billion Woodford fund has been continuing to invest in the tobacco sector since it launched three months ago, now holding BAT, Imperial, Philip Morris (PM), Altria (MO) and Reynolds American (RAI). Before that manager Woodford built up considerable tobacco bias in the Invesco Perpetual High Income and Income funds before his departure last year.
The Woodford Fund increased its exposure to Reynolds American after its proposed merger with Lorillard became known in August.
Stephen Lamacraft, fund manager, Woodford Investment Management, said: “Tobacco stocks remain a core part of the CF Woodford Equity Income portfolio and we don’t expect a windfall tax to impact their attractive dividend profiles.”
