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COMMENT
Someone once asked me if I had an issue with investing in non-ethical or 'sin' companies. As I see it, investing in shares is hard enough without bringing political correctness into the equation as well. Consequently, I am comfortable with investing in any business provided it is legal and if its valuation is compelling enough. Others will feel differently of course. As it happens, some unethical companies have been striking investments. Take Imperial Tobacco (LSE: IMT), which manufactures a product that is known to be harmful to its users' health. Despite this, investors have benefited from rising dividends, which are expected to increase another 18% this year. Based on current forecasts, the cigarette maker is yielding 3.8%. British American Tobacco (LSE: BATS) is another cigarette maker that has seen sales grow. Although many smokers are giving up, the increase in the world's population means more new smokers are taking their place. It is estimated that by 2050, there could be as many as 1.34bn smokers worldwide compared to around 1.28bn today. That augurs well for brand-focussed BAT, whose shares are yielding 3.9%. Turning to drink, the world's biggest spirits maker Diageo (LSE: DGE) offers quite a decent yield, too -- around 3.9% according to the latest forecast. But what makes Diageo interesting is its diverse portfolio of brands. Another one of Diageo's strengths is its ability to generate cash. This gives it plenty of scope to buy back its shares. For something with slightly more oomph, fast-growing Blavod Extreme Spirits (LSE: BES) may be worth putting on your watch list. The maker of black-coloured vodka has seen sales grow significantly, though it has yet to turn in a profit. Over Christmas, Blavod said year-on-year sales rose some 20%. Blavod has also branched out into tequila through a joint venture with Japan's Suntory. Games of chance can be naughty but nice, too. William Hill (LSE: WMH), which warned on profits last year, recently said annual profits should now be at the top end of expectations. From time to time bookies can go through rough patches if sporting results don't go their way, but over the long term bookies seldom lose. Casino operators face similar sticky patches. Stanley Leisure (LSE: SLY), which owns the upmarket Crockfords Club in London, said first-half profits had been affected by the terrorist attacks last year. However, the relaxation of membership rules has resulted in more women and under-40s visiting its casinos. Now shorn of its bookmaking operation, Stanley Leisure can focus on its casinos, which it has been expanding to capitalise on new UK gaming laws. What attracts me to sin shares is that they can fare well regardless of the prevailing economic climate. In my view, consumers who enjoy smoking, drinking and gambling are going to carry on doing so whether the economy is weak or strong. This is reflected in their pricing power, which is the ability to raise prices without hurting demand. And at a time when energy prices are rising, businesses that can easily pass along higher costs to their customers should have an edge. David owns shares in British American Tobacco and William Hill.
