Reynolds American Shows Smoking Pays Dividends

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No smoking? No problem.

Tobacco giantReynolds American ( RAI ) has paid a dividend for 36 straight quarters since going public in 2004, and its stock has been a steady performer.

The latest dividend hike was declared in May when the company boosted the quarterly payout by 4 cents a share, or 6.8%, to 63 cents. The annual dividend is $2.52, good for a yield of 5.1% at the current share price and double the S&P 500 average of 2.5%.

Reynolds American is up 19% year-to-date, outperforming the S&P's 16% gain. The stock is getting support at the 10-week line while it works on a flat base with a possible 53.03 buy point.

Reynolds, the maker of Camel, Pall Mall and other cigarettes, is grappling with declining sales of traditional tobacco, and it faces legal battles over smoking-related illnesses. Last month, an arbitration panel ruled against reducing payments to nine states that were part of a landmark settlement in 1998. The settlement requires companies to make annual payments based on their annual cigarette sales.

Reynolds and other tobacco makers are trying to compensate by boosting sales of smokeless tobacco products such as electronic cigarettes, which look like regular cigarettes but don't produce smoke, ashes or smell.

Despite the head winds, the big-cap stock boasts stable, if lackluster, profit growth. The three-year earnings stability ratio is an impressive 1 on a scale of 0 (most stable) to 99 (least stable).

Reynolds recently announced it will report Q3 earnings on Oct. 22 before the market opens. Profit for the period is seen rising 9% from a year ago, up from the previous quarter's 6% gain. Revenue is expected to edge up 1% to $2.14 billion.

Meanwhile, annual pretax margin has risen for at least eight straight years, to a robust 31.5% in 2012. Annual return on equity, a gauge of how well a company is managing its finances, is also strong and rising.

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

This article appears in: Investing , Investing Ideas

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