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Shares of tobacco chain Reynolds American Inc. (RAI - Analyst Report) reached a new 52-week high of $50.57 on Jul 9, on the back of recent launch of its tailor made e-cigarette brand called Vuse. It was higher than the previous 52-week high of $49.99 reached on May 22, 2013 following GMCR’s announcement of hiking its quarterly cash dividend by 6.8% in the annual shareholders meeting.

The stocks of this Zacks Rank #2 (Buy) company recorded a healthy return of 17.1% on a year-to-date basis. The company’s long-term estimated earnings growth rate is 7.7%. Average volume of shares traded over the last three months came in at approximately 1,918K.

Growth Drivers

Reynolds American is putting a lot of focus on the e-cigarette category as it is gradually becoming popular, especially among youngsters. E-cigarettes give the simulating effect of cigarettes and thus, help people who want to quit smoking. Its newly formed subsidiary – RJ Reynolds Vapor Company – has re-engineered and developed a patented vapor technology and a brand called Vuse. GMCR has launched the brand in two varieties – Vuse Solo and Vuse System – in Colorado.

Other tobacco giants like Altria Group Inc. (MO - Analyst Report), Lorillard Inc. (LO - Analyst Report) and Philip Morris International (PM - Analyst Report) are also foraying into the sector.

On May 9, 2013, Reynolds announced that it will hike its quarterly dividend by 6.8% to 59 cents payable on Jul 1, 2013 to shareholders of record at the close of business on Jun 10, 2013. The stock now has a dividend yield of 5.25%.

The owner of Pall Mall and Camel has increased its dividend ten-fold since it was listed in NASDAQ on Jul 30, 2004. The company regularly returns value to its shareholders in the form of dividends. This is the 36th consecutive quarterly cash dividend paid by Reynolds.

Reynolds is expected to post decent second quarter results as management remains confident that the company will post modest gains and slide easily through difficult conditions backed by product innovations and expansion of its distribution network.

The Zacks Consensus Estimate at the moment is 83 cents per share. With a good Zacks Rank and positive Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of 2.4%, Reynolds is expected to beat the Zacks Consensus Estimate in fiscal second-quarter 2013.

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