Tobacco Makers' Dividends Smoking Hot Despite Hurdles

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Tobacco makers aren't fast growers, but they offer hefty dividend payouts that income investors may find attractive.

The cigarette industry has faced a spate of problems over the years in the U.S., from anti-smoking regulations to a decline in usage. But with the advent of electronic cigarettes as well as more overseas smokers, it has found new ways to keep moving forward.

Consolidation may be the next big step. For months, speculation has been running rampant about potential deals. In fact, Wells Fargo said late last month after meeting withLorillard ( LO ) management that it still thinks a potential merger between Lorillard andReynolds American ( RAI ) is highly likely.

Lorillard, with a market cap of $21.7 billion, is the No. 3 U.S. player in the space. The Greensboro, N.C.-based company's major brands include Kent, Maverick and Newport, the second-best-selling brand in the U.S.

Lorillard, which has steadily increased its annual earnings per share each year since 2009, has a three-year Earnings Stability Factor of 1 on a scale of 0 (most stable) to 99 (most erratic). Its current quarterly dividend of 61.5 cents a share, or $2.46 annually, works out to a 4.1% yield. The S&P 500's yield is 1.87%.

Reynolds is the No. 2 U.S. tobacco maker, with a $31.8 billion market cap. Camel, Pall Mall and Winston are among its brands. It also has a three-year Earnings Stability Factor of 1. Reynolds' quarterly payout is 67 cents a share, or $2.68 for the year, for a 4.4% yield. Its 85 Composite Rating is best in the eight-stock Tobacco group.

That leavesAltria Group ( MO ), with an $82.3 billion market cap, as the biggest player. The maker of Marlboro and Virginia Slims boasts annual profit gains since 2007, a 1 Earnings Stability Factor and an 84 Composite Rating.

The Richmond, Va.-based company's yield is the highest of the three at 4.7%. It currently pays 48 cents a share on a quarterly basis, or $1.92 for the year.



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: Personal Finance , Investing Ideas

Referenced Stocks: LO , RAI , MO

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