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The board of Lorillard, Inc (LO - Analyst Report) has authorized the repurchase of additional $500 million worth of shares, which will add to the existing share repurchase program of $500 million, announced in Mar, 2013. Lorillard now has the authorization to repurchase up to $1.0 billion worth of its shares. The authorization is expected to be completed through 2013.

In the recently reported first quarter, announced in Apr 2013, the cigarette manufacturer repurchased approximately 1 million shares at a cost of $40 million. Lorillard now has $960 million worth of shares remaining in its $1 billion share buyback program. Prior to this, Lorillard completed its $500 million share repurchase program at the end of Jan, 2013, announced earlier in Aug 2012.

The share buyback program 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.

In fact, Lorillard is one of the most efficient and aggressive companies in the tobacco industry that regularly increases shareholder return in the form of dividend and share repurchase activities. The company has rewarded its shareholders and has increased dividend payment every year. On Mar 11, Lorillard paid a quarterly dividend of 55 cents to stockholders of record as of Mar 1, 2013. The dividend of 55 cents was increased from 52 cents, which was announced in Feb 2013.

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 #3 (Hold). Another cigarette company worth considering is Reynolds American Inc (RAI - Analyst Report), which carries a Zacks Rank #2 (Buy).

Some other stocks in the consumer goods sector worth a look are Flower Foods Inc (FLO - Snapshot Report) and Omega Protein Corp , both of them carrying a Zacks Rank #1 (Strong Buy).

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