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Lorillard, Inc(LO - Analyst Report) regularly increases shareholders’ return in the form of dividends and share repurchases. In the recently concluded fourth quarter of 2013, the cigarette manufacturer paid a quarterly dividend of 55 cents on Dec 10 to stockholders of record as of Nov 29, 2013.

Recently on Feb 20, the board of directors of this company announced a hike of 12% in its quarterly dividend. This implies that Lorillard will now pay a dividend of about 61.5 cents to its shareholders, up from 55 cents per share. This means that Lorillard will pay an annual dividend of $2.46 per share, which translates to an annualized dividend yield of 5.1%. The new quarterly dividend will be paid on Mar 10 to shareholders of record as of Feb 28, 2014. This was the sixth dividend increase by Lorillard. In Feb 2013, Lorillard’s board had raised its quarterly dividend by 6.5% to 55 cents.

Over the long term, Lorillard expects to return approximately 70–75% of its earnings to shareholders in the form of dividends and share buybacks. Regular dividend payments and share buybacks reflect the company’s confidence in its fundamentals. In the fourth quarter, Lorillard repurchased approximately 4.6 million shares at a cost of $228 million under its $1 billion share repurchase program. The company has $314 million worth of shares remaining under its share buyback program.

The share buyback helps the company reduce outstanding share count, thereby increasing earnings per share and return on equity.

Buybacks remain one of the vital drivers of profitability in the tobacco industry, where companies like Altria Group Inc (MO - Analyst Report), Reynolds American Inc (RAI - Analyst Report) and Philip Morris International Inc (PM - Analyst Report) are facing declining cigarette volumes for years owing to lower consumption. Covering up for the softer top line due to weak volumes, price increases coupled with share buybacks bolster the bottom line.

Currently, Lorillard has a Zacks Rank #3 (Hold).

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