Why Lorillard Is An Attractive Long-Term Buy

Jul. 8.13 | About: Lorillard, Inc. (LO)

Companies that have continued to increase their dividend payments over the years tend to offer the ideal stability investors like to capitalize upon. These consecutively rising distributions of wealth invoke a sense of confidence for those looking for predictability and a growing return. For many investors, veteran companies that have proven such trends have come to represent some of the most stable investments fit for an income portfolio.

For this reason, we turn to take a look at Lorillard, Inc. (LO). With its roots dating back to 1760, the American cigarette company continues to offer a unique opportunity for those looking for a steady investment.

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Lorillard stands as the third largest manufacturer of cigarettes in the United States. The company operates through two business segments found in Cigarettes and Electronic Cigarettes [eCig]. As seen in the graphic above, the company has continued to offer a steady return of income for investors. It is this growing income component that stands as an attractive factor for shareholders. In a little under 5 years, the company has increased its quarterly dividend from $0.307 to $0.55. This represents an increase of nearly 79%.

Despite the increased dividend rate, Lorillard's actual dividend yield has not changed much over the same time period. A rather interesting chart can be seen in the graphic below. We see that even as Lorillard continues to rise in share price, the company's yield has not changed much. Offset by the growing rate, the company's rising price fails to lower the actual yield.

At the same time, a very shareholder-friendly policy has continued to propel the stock higher. Through stock buybacks, Lorillard continues to reduce the number of shares outstanding. Over the last 5 years, the company has reduced the shares outstanding by more than 25%.

LO Chart
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LO data by YCharts

According to Lorillard's last earnings conference, a few additional positives continue to take shape for the company. The transcript of the Q1 2013 earnings results can be found here. Here are a few additional reasons investors may wish to keep a positive outlook when it comes to Lorillard:

  • The company grew its market share in cigarettes. Lorillard's portion grew 0.4 share points versus a year ago. This was also 0.7 share points higher versus the fourth quarter, leading to a record high of 14.9%.
  • Lorillard boasts that its "blu" eCig claimed just over 40% of the market share for eCigs, more than double its closest competitor.
  • "blu" sales increased to $57 million for the quarter. This represented a sequential increase of 46% from Q4 2012.

For a company able to trace its roots for more than 250 years, shareholders can be rest assured that business continues to thrive. Both revenue and earnings continue to grow as seen in the chart below. This is especially relevant when taking into consideration the declining share count.

LO Revenue Per Share Quarterly Chart
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LO Revenue Per Share Quarterly data by YCharts

Lorillard has also positioned itself well for the changing times. The company's investment into electronic cigarettes allows for sustained growth going forward. Its leadership position in this category also helps to fortify its brand recognition.

Conclusion:

Overall, investors looking for a long-term investment with an impressive yield should consider adding Lorillard to their portfolio. With an ongoing share-buyback program, there remains a catalyst for share price appreciation going forward. Likewise, the company has illustrated its ability to sustain its rather high yield. Above all, Lorillard continues to grow its market share along with its earnings capability.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.