Vector Group Should Burn Longer Than The Smokes It Sells

Say it's the Cramer effect. Say it's Carl Icahn. But don't say it's the 8% dividend.

Vector Group (VGR) saw its stock explode Thursday. Closing up nearly 9% on huge volume, VGR realized one of its biggest one day moves in recent history. Then on Friday, it rose another 2.3%.

There was good reason to buy this tobacco/real estate company. Of course, probably one of the most obvious reasons was Cramer hawked it as a buy on his Mad Money program. Cramer also broadcast Icahn's tremendous stake in the company, which now stands at approximately 20%. He also mentioned the juicy dividend yield guaranteed to make any value investor salivate.

However, the dividend, albeit a great reason to own the $1.25 billion company, may not have had much sway on investors yesterday as they piled into VGR.

Why? Well, after following this stock for more than a year, I found that VGR usually experiences a nice pop right before the dividend payable date in which an investor must own the stock to receive the dividend. The most recent dividend payable date for this quarter was June 20. The big move occurred on June 21. Thus, most of the buying yesterday was obviously not for the quarterly dividend to be paid on June 29 to investors of record on June 20.

In mid-May I recommended VGR to subscribers in the Shade Capital Report when it was trading at $18.50 and the uncanny timing of this recent buying craze only adds to my positive outlook, as VGR is now over $21.

One other piece of speculation that may propel the stock is a buyout rumor. There has been consolidation in the tobacco space during the past year and Carl Icahn's ownership only feeds into the likelihood of such a scenario. Finally, the shorts are loaded into this stock shorting nearly 9% of it. Talk about getting smoked. No pun intended.

All of these factors should keep the price of VGR stock burning a little longer than the cigarettes it sells.

Comments

[whisperonth...:]

Just looking back on things I wanted to watch for a bit. You don't suppose this might have something to do with the fact that a) it's cheaper than the others; b) the yield is still higher; c) some smokers actually buy stock in the companies (and yes, there are still smokers out here!); or d) they tend to offer a stock dividend in September? Not to say that they will this year (2008) but the regular dividend, and the fact that the chart is looking pretty boring now tells me I need to stay in for a while. Besides, they make my brand!

2008 Mar 01 08:28 AM