Philip Morris International Inc. (PM), Altria Group Inc (MO), Lorillard Inc. (LO) – Sky-High Dividends for a Faltering Industry: Does Tobacco Still Have Potential?

Financial comparison

Data from Morningstar and Financial Visualizations on July 2^nd, 2013

The industry has an average price-to-earnings value of 17.0, which makes Philip Morris International Inc. (NYSE:PM) look overvalued and Lorillard Inc. (NYSE:LO) heavily undervalued. While Lorillard Inc. (NYSE:LO)’s net income growth over the past three years has not been stellar, it fared much better in the latest quarter while also offering a mouth-watering 5.02% yield. Altria Group Inc (NYSE:MO) also offers a 5.02% yield, but it has an intrinsic drawback since it entered the e-cigarette market much later than its competitors. Lorillard Inc. (NYSE:LO) also heads the pack in forward price-to-earnings ratios and looks to have a significant amount of shareholder value yet to be unlocked.

PM data by YCharts

Verdict

Philip Morris has a geographical advantage as it has a wider target base and also enjoys less-aware consumers than those found in the American market. This will allow the company to continue selling traditional cigarettes far longer than its American counterparts.

Speaking purely from the stock perspective, it is astonishing that Lorillard Inc. (NYSE:LO) has been able to keep up Altria Group Inc (NYSE:MO) and Philip Morris over the past five years. With the introduction of e-cigarettes, strong sales and a head start on Altria Group Inc (NYSE:MO) provides a ripe opportunity for Lorillard to attract investors. The company does not only have potential for high intrinsic growth due to its product line, but also features 5.02% yield on its stock. I’m all in for Lorillard Inc. (NYSE:LO).

The article Sky-High Dividends for a Faltering Industry: Does Tobacco Still Have Potential? originally appeared on Fool.com and is written by Awais Malik.

Awais Malik has no position in any stocks mentioned. The Motley Fool owns shares of Philip Morris International. Awais is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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