During the last couple of years, the cigarette industry hasn’t shown a lot of promise. More taxes on cigarettes, rising smoking bans and more public awareness are the major reasons behind the lackluster performance of the industry. As more countries start to ban public smoking, smoking’s future doesn’t look that promising.
However, even in this sluggish industry, there are three high dividend stocks that are expected to keep on rewarding its shareholders in the coming years. I have discussed these three stocks in my article below.
Lorillard Tobacco Company
The American tobacco company, Lorillard Inc. (NYSE:LO), is trading at a low forward P/E (1yr) of 11.36x, which makes it a great bargain. It’s yielding a high dividend of 5.70% and has a PEGY of 0.88. A whopping operating margin of 44% shows that it’s earning a lot on its sales. Lorillard Inc. (NYSE:LO) has cash per share of $4.55 that is more than twice its current dividend, suggesting that it can easily sustain this high payout in the future. A healthy current ratio of 1.74 plus a levered free cash flow of $1.16 billion shows Lorillard’s strong liquidity position.
Lorillard Inc. (NYSE:LO) has recently announced a repurchase program of $500 million –the repurchase program would be carried out this year. This reiterates the fact that Lorillard keeps on rewarding its shareholders. In short, it’s a great buy for dividends.
Vector Group
The holding group, Vector Group Ltd. (NYSE:VGR), is currently trading at $15.68x and has a dividend yield of 6.30%. During the last five years, company’s dividends have grown by 5%. Its cash per share stands at $3.25 which is more than 3 times its current dividends. Hence, it can easily sustain this high dividend yield in the coming years. A current ratio of 2.19 testifies its strong liquidity. Moreover, an operating margin of 23% as compared to an industry margin of 20% depicts that it’s minting substantial profits in the industry. The bottom line is that Vector Group Ltd. (NYSE:VGR) has not only rewarded its investors in the past, it will continue to do so in the future as well. Hence, it’s a strong buy for dividends.
Altria Group
The tobacco giant, Altria Group Inc. (NYSE:MO), is trading at a forward P/E (1yr) of 13.28x, making it slightly cheaper than the average tobacco stock. It’s yielding a dividend of 5.20% and has a healthy PEGY of 1.24. A high operating margin of 43% testifies the fact that the company is generating healthy incomes on its sales. Moreover, Altria’s earnings have grown by almost 32% in its most recent quarter, showing its strong performance. A payout ratio of 83% depicts that the company has been keen on rewarding its shareholders. According to the sell side, Altria Group Inc. (NYSE:MO) has a mean recommendation of 2.2, depicting that it’s one of the top buys in the tobacco industry.
Going Forward
The most recent smoking ban comes from Russia, where the government has imposed new restrictions on smoking at public places. As Russia has more than 44 million smokers, this ban would have a further negative effect on the global cigarette industry. In contrast to cigarettes, the market for smokeless tobacco such as gum, snuff, and snus seems to be heading the right way. More tobacco companies are realizing the fact that smokeless tobacco is the way to go in the future. Hence, the cigarette market is bound to shrink in the years ahead, while the smokeless products’ share would gradually increase. In short, companies investing more in the smokeless products would keep on earning well.
The article 3 High Dividend Tobacco Stocks To Buy originally appeared on Fool.com and is written by Waqar Saif.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
