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Lorillard Delivers Big Dividend Yield, Steady Growth

By: Investor's Business Daily
Posted: 9/30/2013 5:46:00 PM
Referenced Stocks: LO

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.