For Income Investors:
Reynolds American |  - Co. Spotlights available via RSS feed
| Smoke, No Mirrors |  
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Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk. | | RAI | $53.76 | Why It's Featured: Well above average yield with strong cash flow to pay it.
Keep an Eye On: More lawsuits, more regulation, weakening demand. | Dividend Yield | 6.7% | | Dividend/Earnings | .72 | | Financial Strength | B+ | | Div. Date: April | Ex-Div: Mar |
February 4, 2010 - Reynolds American Inc. (RAI-NYSE) through its subsidiaries, manufactures cigarettes and other tobacco products in the United States. It offers cigarettes under the CAMEL, KOOL, PALL MALL, DORAL, WINSTON, SALEM, MISTY, and CAPRI brands, as well as under the DUNHILL, STATE EXPRESS 555, and NATURAL AMERICAN SPIRIT brands.
The company manufactures other tobacco products,including little cigars under the WINCHESTER and CAPTAIN BLACK brands; roll-your-own tobacco under the BUGLER brand; and moist snuff under the GRIZZLY and KODIAK brands.
In addition, Reynolds American offers loose leaf chewing tobacco, dry snuff, and plug and twist tobacco products. It sells primarily through distributors, wholesalers, and other direct customers, including retail chains, as well as distributes cigarettes to public warehouses. The company was founded in 1875 and is headquartered in Winston-Salem, North Carolina.
Tobacco is a controversial product. It is a deadly habit or at the least a cancerous one over time. Having said that, some investors take the position that if people want to smoke or chew tobacco, that is their right. It's also an investor's right to invest in a profitable company that pays a good dividend.
And that's what RAI is: profitable with a good dividend. While earnings were most likely down in 2009 (expected at $4.69 vs 20008's total of $4.80), they are expected to bounce back this year to $4.95 according to the 12 analysts who cover the stock. Earnings will be out on Feb. 4. The fourth quarter should show $1.16, down from $1.27. For the first quarter of this year, analysts see $1.07, up from the $1.00 of last year's first period.
Revenues have been fading since 2007 when they hit $9.023 billion. In 2008, they were $8.845. Last year, analysts think the total was $8.39 billion. For this year, they see another lower tally of $8.33 billion.
In order to keep profits growing while sales are slowing, management is focused on cutting costs. It offered to buy out 1800 workers to reduce payroll.
It's also looking to expand. Reynolds bought a nicotine-replacement therapy company, based in Sweden and Denmark. Cost about $44 million. It makes nicotine gum, spray and pouches. With smoking and tobacco products fading in popularity, this acquisition makes sense.
The company's Camel brand is doing well and should increase profits for the next several quarters. In addition, the company's smokeless products are seeing improved sales.
The dividend is $3.40 a share per year. That's a yield of 6.7%. It takes 72% of the earnings to pay it. The dividend seems relatively safe as the company has a strong cash flow, enough to more than adequately cover its debt service (debt is 39% of capital) and pay out the quarterly dividend.
More numbers: Market Cap is $15.7 billion. Forward P/E is 11. Price to sales is 1.85. Price to book is 2.47. Book value is $21.81. Operating margin for the last 12 months was 30.64% while Profit margin was 11.82%. Return on equity was 14.42%. There's $2.52 billion in cash for $8.65 per share. Total debt is $4.45 billion. Current ratio is 1.3. Beta is .61. There are 291.38 million shares outstanding. Insiders own 42.13% of them. Institutions have 47.80%.
Reynolds American should appeal to income oriented investors because the yield is so attractive and seems relatively safe. However, smoking and smokeless products are waning in appeal as health concerns continue. There's no question demand is lower, and smoking is no longer considered "cool". Still, it's an addictive habit, and one that many people enjoy, even if it's not good for them. Some investors should find this stock worthy of more attention.
- Company Web site: www.ReynoldsAmerican.com - Ted Allrich |
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