Lorillard Inc. (LO): A 5% Yield and a Great Value

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Maybe even more important to the tobacco industry’s future is a newer product called the e-cigarette. This relatively new concept is an area that Lorillard Inc. (NYSE:LO) has taken an early lead in. For those who don’t know, e-cigarettes look like traditional cigarettes, but only contain nicotine. These devices allow the smoker to get the nicotine fix they crave but don’t contain the potentially harmful tar and other products in regular cigarettes. For both the smoker and for those around them, the best part about e-cigarettes is there is no smoke, but instead a water vapor is released. This allows smokers to enjoy what they crave and avoids the potentially harmful side-effects to both the smoker and those around them.

Lorillard Inc. (NYSE:LO) has recently been advertising their Blu brand of e-cigarette with the idea that adults should “take back their freedom.” Since these devices seem to address all of the major health hazards of traditional cigarettes, a major switch to e-cigarettes could call into question smoking bans and other smoking unfriendly policies.

While e-cigarette sales only accounted for about $57 million of Lorillard’s current quarter revenue, as you can imagine, if this category catches on, it could change the tobacco industry forever. The difference between Lorillard and the competition is that Lorillard seems to have realized this opportunity first. Reynolds American said they would announce their Vuse e-cigarette “expansion plans soon,” and Altria said their Nu Mark brand “plans to introduce an ecig.” Lorillard’s first mover advantage could be a huge win for the company.

Quite simply, investors in Lorillard Inc. (NYSE:LOarguably get the best combination of traits in this industry. The company’s yield is high, they are expected to outgrow their domestic peers, their valuation is reasonable, and e-cigarettes could provide a sustainable way to grow the business. Investors should be careful not to overlook this opportunity, otherwise they may see their potential returns go up in smoke.

Chad Henage has no position in any stocks mentioned. The Motley Fool owns shares of Philip Morris International (NYSE:PM).

The article A 5% Yield and a Great Value originally appeared on Fool.com.

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