Lorillard Delivers Big Dividend Yield, Steady Growth


Nowadays companies across the gamut of industries pay shareholder dividends. Tobacco firms pay some of the juiciest yield. One such issue isLorillard ( LO ).

With a lineage dating back to 1760, the Greensboro, N.C.-based firm is the third biggest maker of cigarettes in the U.S. Its flagship Newport brand is the nation's second best seller.

Lorillard has a policy to return 70% to 75% of its net income to stockholders as dividends. It currently pays 55 cents per quarter. The company's quarterly dividend has jumped by 67% in the past three years. It last announced a hike in February.

On an annual basis, Lorillard pays $2.20 a share, which works out to a yield of about 4.9% -- the fourth biggest among its peers. But the stock's yield is nearly twice that of the S&P 500 index.

Besides returning cash to shareholders via dividends, Lorillard has also bought back billions of dollars of its own stock in recent years. Lorillard added $500 million to an existing share repurchase program in May, doubling the original amount.

The company's earnings slipped in 2008, but have grown by single or double-digits each year since. Lorillard has an Earnings Stability Factor of 2, indicating a rock-steady stream of profits. Analysts polled by Thomson Reuters see earnings per share rising 11% this year and 12% in 2014.

In the latest two quarters, Lorillard's profit grew 14% and 11%, respectively, thanks to higher average selling prices. The company has steadily increased its retail market share to 14% from 10% in 2010.

One area of growth for Lorillard stems from electronic or e-cigarettes. In April 2012, Lorillard bought e-cigarette leader blu eCigs for $135 million in cash. A Wells Fargo report from August 2012 has said that demand for e-cigarettes could overtake that of traditional cigarettes over the next 10 years.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Investing Ideas

Referenced Stocks: LO

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