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.
Negatives:
(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%
Statistical Summary
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
Chart
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.
12/14
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