In searching for the best stocks that pay a good dividend while also having the ability to maintain earnings, I found three great tobacco stocks. They have great dividends going for them, and also have great catalysts that will enable them to continue their strong earnings.
The three companies that will be discussed here are Reynolds American, Inc. (NYSE:RAI), Lorillard Inc. (NYSE:LO), and Altria Group Inc (NYSE:MO).
What they have going for them
The following are the attributes that the three companies have going for them which make them great long-term investments in my opinion.
First, let’s take a look at a five-year chart for price percentage change compared to the S&P 500.
As this chart shows, all three companies have handily outperformed the S&P 500 index. This does not include their dividends, either, and the companies all pay dividends that amount to a 5% or greater dividend yield at the current time. Before the recent bull market around 2009-2010, the dividend yields were even higher.
Growing dividends at a high rate
The companies are growing dividends at a great rate. The industry I compare it to most is the telecom industry and companies such as AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ). I make this comparison because all of these companies are considered by many to be solid blue-chip companies in either the Dow Jones Industrials and/or the S&P 500. Additionally, both industries have a history of generous dividends. With dividend increases for AT&T and Verizon of around 2% per year, these tobacco companies offer a substantial premium to that.
On May 9, Reynolds American, Inc. (NYSE:RAI) announced a 6.8% annual dividend increase. This is in line with the recent 7% dividend increase for Altria Group Inc (NYSE:MO) and Lorillard Inc. (NYSE:LO)’s most recent dividend increase of around 6%.
Solid projected five-year growth
Reynolds American, Inc. (NYSE:RAI) is estimated by analysts to grow by 7.6% per year over the next five years. Altria Group Inc (NYSE:MO) is poised to grow by 7.47% over this same time period, while Lorillard is expected to lead the pack with 9.65% growth in the same amount of time. This potential growth for Lorillard Inc. (NYSE:LO) is fueled by its fast-growing electronic cigarette business.
With growing dividends and projected earnings growth, it is no surprise that the companies’ share prices are trading toward to upper end of their 52-week ranges collectively.
Additional bonuses with these companies
For Reynolds American, Inc. (NYSE:RAI), owning shares in the company allows you to get in on a company with a strong portfolio of brands such as Camel, Pall Mall, Winston, and Kool, just to name a few. In the future, there is potential that any of these individual brands can be spun off to create further shareholder value.