Cigarette manufacturer Lorillard, Inc (LO - Analyst Report) has approved an additional share repurchase, thereby maintaining the trend of returning value to its shareholders from time to time, depending on market conditions.
Under the latest program, the company’s board has authorized the repurchase of up to $500.0 million of its common stock. The authorization is expected to be completed through 2013.
The share buyback helps the company reduce outstanding share count, thereby increasing earnings per share and return on equity. Apart from bolstering shareholder value, this strategic move will also lift the relatively undervalued share price.
Under the company’s existing share repurchase authorization of $500.0 million, Lorillard spent approximately $304 million for the repurchase of 7.8 million shares during the fourth quarter of 2012, reported on Feb 13.
Last month, Lorillard’s board declared a quarterly dividend hike of 6.5% on its shares and paid a dividend of 55 cents on Mar 11, 2013 to stockholders of record as of Mar 1, 2013. The company paid its last dividend of 52 cents in Dec, 2012. Apart from this, in Nov, 2012, the company’s board approved a three-for-one split of Lorillard common stock, which was distributed in the form of a 200% stock dividend. The additional shares were distributed on Jan 15, 2013.
In fact, Lorillard is one of the most efficient and aggressive companies in the tobacco industry that regularly increases shareholders’ return in the form of dividend and share repurchase activities. The company has rewarded its shareholders and has increased dividend payment every year. Over the long term, Lorillard expects to return approximately 70–75% of its earnings to shareholders in the form of dividends. Regular dividend payments and share buybacks reflect the company’s confidence in its fundamentals.
Overall, we are encouraged by the company’s dominant share in the market with rising popularity of its premium brand Newport and value brand Maverick. Moreover, it is adapting to changing consumer demands by investing in less-hazardous alternatives for tobacco with the acquisition of blu eCigs and developing electronic cigarettes. Currently, Lorillard has a Zacks Rank #2 (Buy).
Other stocks in the consumer staples sector worth a look are Green Mountain Coffee Roasters Inc (GMCR - Analyst Report), Kellogg Co (K - Analyst Report) and Altria Group Inc (MO - Analyst Report). While Green Mountain carries a Zacks Rank #1 (Strong Buy), Kellogg and Altria hold a Zacks Rank #2 (Buy).