Altria Group Inc (MO), Lorillard Inc. (LO): Tobacco Stocks with Upside and Yield

A low valuation and improving earnings

Shares of Lorillard Inc. (NYSE:LO), with its most prominent brand being Newport, is priced at 14.2 times trailing 12 month earnings. The industry average P/E is 18.9, according to fool.com. The valuation is based on share net of $3.10, and results should increase further, possibly at a 10% year-to-year clip. Lorillard Inc. (NYSE:LO) is gaining share globally, specifically within the menthol category.

The dividend has increased consistently on an annual basis. The shares currently yield 5.0% annually. I recommend Lorillard Inc. (NYSE:LO) shares for their combination of price weakness and hefty yield.

A historically consistent dividend stock

Reynolds American, Inc. (NYSE:RAI), the second-largest cigarette manufacturer in the U.S., like the others discussed here, has regularly upped its dividend, while also repurchasing shares. Its annual dividend, now amounting to $2.52 a share, represents a yield of 5.2%. Its trailing 12-month earnings were $2.70, bringing its P/E ratio to 18.

Reynolds American, Inc. (NYSE:RAI)’s subsidiaries are R.J. Reynolds, American Snuff, and Santa Fe Natural. Reynolds American, Inc. (NYSE:RAI)’s Cameel and Pall Mall brands have maintained their market share for the most part. Its earnings are growing, partly thanks to expansion at its modestly-sized growth brand, Santa Fe.

Choosing your stock

In my view, Lorillard Inc. (NYSE:LO) shares are the most attractive of the four mentioned here, based on the company’s extensive use of cash for dividend payouts and repurchases. Cigarette makers often rely on international expansion and pricing for earnings growth. This sector is best-suited for income-hungry investors.

The article Tobacco Stocks with Upside and Yield originally appeared on Fool.com.

Damon Churchwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Damon is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.