Tags: Lorillard | defensive | dividend | LO

Lorillard Offers Defensive Play, High Dividend

By    |   Wednesday, 12 Oct 2011 03:05 PM

Tobacco company Lorillard (LO) provides an investment profile very similar to the other major companies in its sector: High cash flow, a defensive stock, and an attractive, high dividend payment to investors.

Lorillard is a tobacco product manufacturing company whose main brand is the Newport line of menthol-flavored cigarettes. The Newport brand generates approximately 90 percent of sales, but the company also owns Kent, True, Maverick, and Old Gold brands. With a $15 billion market cap, Lorillard is a relatively small tobacco company compared to industry giants Phillip Morris (PM), at $109 billion, and Altria Group (MO), at $55 billion.

Lorillard posted impressive results for the second quarter of 2011. Here are some of the numbers lifted from the quarterly earnings report:
  • Revenues increased 11 percent to $1.69 billion from $1.52 billion.
  • Operating income increased 9 percent to $487 million from $445 million.
  • Net income per share increased 18 percent to $2.05 from $1.73.
  • Wholesale shipments increased 10 percent while the over industry experienced just over a 1 percent decline.

The consensus earnings estimate for full year 2011 is $7.71 per share, up from actual 2010 earnings of $6.78.

Dividends, share buybacks

Lorillard puts its cash flow to work to benefit shareholders in the form of a high and attractive dividend payout plus share buybacks that increase net income on a per-share basis. The results of share buybacks on net income can be seen in the results above. A 9 percent increase in operating income resulted in an 18 percent net income per share gain, year-over-year.

The current $1.30 quarterly dividend rate puts the Lorillard yield at better than 4.5 percent. Corporate policy is to pay out approximately 70 percent of net income as dividends. Lorillard was spun out of Loews Corp. (L) in 2008 with an initial 92 cents per share dividend rate.

Standard & Poor's tobacco analyst Esther Kwon recently upgraded most of the stocks in the tobacco group, including an upgrade to a buy rating for LO.

The company next reports on Oct. 24.

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Tobacco company Lorillard (LO) provides an investment profile very similar to the other major companies in its sector: High cash flow, a defensive stock, and an attractive, high dividend payment to investors. Lorillard is a tobacco product manufacturing company whose main...
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