Lorillard Inc. (LO) is the third largest manufacturer of US cigarette brands including Newport, Kent, True, Maverick and Old Gold. The company has grown profits at an 11-12% rate over the last 10 years earning a very high rate of return on equity. However, that was primarily due to a very high debt to equity ratio---which we view as a negative. It has grown its dividend per share since 2008 from $.61 to $2.46 in 2013. Lo is expected to continue this performance as a result of:
(1) increasing market share due to its strong portfolio of brands,
(2) product innovation especially in e-cigarettes,
(3) increasing prices,
(4) a stock buyback program.
(1) a highly competitive industry,
(2) declining cigarette sales,
(4) regulatory restrictions.
Lorillard is rated A by Value Line, has a 100% debt to equity ratio and its stock yields 4.1%
Stock Dividend Payout # Increases
Yield Growth Rate Ratio Since 2008
LO 4.1% 10% 65% 6
Ind Ave 4.4 8 62 NA
Debt/ EPS Down Net Value Line
Equity ROE Since 2004 Margin Rating
BFB 100% NMF 0 19 A
Ind Ave 63 56 NA 14 NA
Note: LO stock made great progress off of its January 2009 low, quickly surpassing the downtrend off its December 2007 high (straight red line) and the November 2008 trading high (green line). Long term, LO is in an uptrend (blue lines). The wiggly red line is the 50 day moving average. The High Yield Portfolio owns a full position in LO. It is currently on the High Yield Buy List. The lower boundary of its Sell Half Range is $79.