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Switching To Neutral On Universal Corp.

Mar. 08, 2021 10:25 PM ETUniversal Corporation (UVV)16 Comments
Patrick Doyle profile picture
Patrick Doyle


  • As I demonstrated in my previous missive on this name, I think the dividend is reasonably well-covered. Investors shouldn't expect much growth though.
  • The problem is the valuation. I think the market has gotten ahead of itself, and this makes no sense in light of the recent financial performance in my view.
  • For those interested in making some kind of return here, I've done well with short puts and I offer yet another such trade below.

After buying small positions in Universal Corp. (NYSE:UVV) on two occasions, I’m basically at a breakeven on the investment, and I thought I’d take another look to decide whether I should finally deploy the capital I had put aside and acquire a full position in this name. I’ll try to make that determination by looking at the financial history and by looking at the stock as a thing distinct from the underlying business. Finally, I want to update investors on my short put strategy with this trade.

I know that you’re a busy crowd, dear readers, and for that reason, I’ll leap right to the point. I’ll write this “summary paragraph” for the individuals who missed the title of this article, and the three bullet points just below the title and landed on this, the second paragraph in the piece. I think Universal is a decent business, and I think the dividend is barely sustainable. I don’t expect much dividend growth going forward, though.

The problem in my view is that the shares are much more expensive now than they were when I last looked in on this name, and that’s bad because history demonstrates that the price you pay really matters. For that reason, I would recommend eschewing the shares at current prices. That said, I’d be very happy to buy these shares at $40, and so I’ll be selling some put options with a $40 strike price.

Financial Snapshot

In my previous missive on this name, I made what I think is a compelling argument to suggest that the dividend is covered, but only just. I made this argument by looking at the size and timing of contractual obligations, and compared those to the company’s resources. I don’t want to go over that well-worn ground again, and I welcome those masochists who want to

This article was written by

Patrick Doyle profile picture
I'm a quant investment newsletter writer who marries fundamental analysis with the latest research in momentum. Over the past few years, I’ve developed a piece of software that helps me track the level of optimism and pessimism embedded in stock price. I seek to challenge the assumptions embedded in price by profitably exploiting the disconnect between what the market thinks and what is a likely outcome. I invest in those companies that have a greater than average chance of giving us all a surprise in the next few months.

Analyst’s Disclosure: I am/we are long UVV. 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.

I'll be selling 10 of the puts described in this article this week.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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