Up to date on October eighth, 2021 by Bob Ciura
Whereas there are lots of dividend paying shares out there, there are solely 32 shares which have supplied a rising dividend for no less than 50 consecutive years. This unique group of shares are known as the Dividend Kings.
You possibly can see the complete downloadable spreadsheet of all 32 Dividend Kings (together with essential monetary metrics corresponding to dividend yields, payout ratios, and price-to-earnings ratios) by clicking on the hyperlink under:
Earlier this yr, Common Company (UVV) raised its dividend for the 51st yr in a row. This text will evaluate the corporate to find out if the inventory earns a purchase suggestion as we speak.
Common Company is the most important exporter and importer of tobacco leaf on this planet. The corporate is a wholesale purchaser and processor of tobacco and operates as a go between for farms and the businesses that manufacture cigarettes, pipe tobacco and cigars. Common Company has been in enterprise since 1886 and is headquartered in Richmond, VA.
Common Company has in depth attain world wide.
Supply: Investor Presentation
Common Company has a presence in additional than 30 nations and employs in extra of 20,000 everlasting and seasonal staff.
Common Company has had a troublesome couple of years as earnings-per-share really declined from 2010 to 2020. There have been years of sporadic development, however total EPS has declined in that 10-year interval.
Nonetheless, there are some vibrant spots to the corporate’s enterprise that might result in future returns, to not point out a really interesting dividend yield.
As the most important exporter and importer of leaf tobacco on this planet, Common Company gives a dimension and scale that rivals can’t match.
Because of this the corporate can rely the most important tobacco product manufactures on this planet amongst its clients.
Supply: Investor Presentation
Six of Common Company’s prime clients are among the many largest tobacco manufactures on this planet. These firms management greater than four-fifths of the worldwide tobacco market.
Three-quarters of Common Company’s annual income often comes from these clients. Counting the most important names within the sector as clients probably implies that the overwhelming majority of revenues could be counted on annually. This offers the corporate some stability and might reassure shareholders that the enterprise could be sustainable.
Common Company additionally strives to supply the vast majority of its gross sales to fulfill anticipated demand. Because of this the corporate targets a majority of its stock to clients with dedicated gross sales orders. This enables Common Company to not be caught holding product or being compelled to promote at a lower cost as a way to cut back stock.
Lastly, as smoking charges have declined within the U.S. and elsewhere, firms within the tobacco sector have to determine different methods to develop revenues.
Supply: Investor Presentation
Common Company is making an attempt to just do that. The corporate made its first such acquisition earlier in 2020 when it added FruitSmart, Inc to its portfolio. FruitSmart processes fruit and vegetable elements and markets them to clients world wide.
Subsequent, Common acquired Silva Worldwide, a privately-held dehydrated vegetable, fruit, and herb processing firm. Silva procures over 60 sorts of dehydrated greens, fruits, and herbs from over 20 nations world wide.
The corporate continues to make bolt-on acquisitions, such because the latest buy of Shank’s Extracts, a privately-held specialty ingredient, flavoring and meals firm with a portfolio of over 2,400 extracts, distillates, pure flavors and colours.
Diversifying the enterprise is a really prudent transfer in our opinion because the variety of people who smoke declines with every passing yr.
Aggressive Benefits & Recession Efficiency
Common Company’s chief enterprise tends to see a dependable shopper, even when tobacco utilization has declined. Shoppers who do smoke are more likely to hunt down tobacco merchandise whatever the state of the financial system. This makes enterprise dependable even in an unreliable time.
Whereas earnings development has been weak in recent times, Common Company navigated the final recession very effectively. The corporate’s earnings per-share earlier than, throughout and after the Nice Recession are listed under:
- 2006 adjusted earnings-per-share: $3.48
- 2007 adjusted earnings-per-share: $4.02 (15.5% enhance)
- 2008 adjusted earnings-per-share: $4.32 (7.5% enhance)
- 2009 adjusted earnings-per-share: $5.68 (31.5% enhance)
- 2010 adjusted earnings-per-share: $5.30 (6.7% lower)
- 2011 adjusted earnings-per-share: $3.25 (38.7% lower)
- 2012 adjusted earnings-per-share: $4.66 (43.4% enhance)
Common Company’s earnings-per-share really improved greater than 41% from 2007 via 2009 throughout what was a really troublesome surroundings for a lot of firms out there.
Earnings-per-share didn’t begin to undergo their steep decline till after the worst a part of the recession had taken place. It needs to be famous that the corporate nonetheless has not taken out its 2009 excessive for annual earnings-per-share.
Valuation & Anticipated Returns
Like all shares, Common Company complete returns will encompass dividend funds, earnings development and valuation adjustments. Utilizing the annualized dividend of $3.12, shares of Common Company yield 6.3%.
The dividend payout ratio has climbed steadily in recent times. The payout ratio exceeded 70% in fiscal 2021. We don’t imagine a dividend reduce is imminent, however do advise warning close to the dividend. On the very least, it’s probably dividend development will likely be muted till earnings development accelerates.
Because of the firm’s moderately weak efficiency for profitability over the past 10 years, we anticipate modest earnings development of simply 1.5% yearly over the subsequent 5 years. Nonetheless, this can positively contribute to shareholder returns.
Lastly, growth of the valuation a number of will not be probably in our view. With a fiscal 2022 P/E of 10.9 towards our honest worth P/E a number of of 11, the inventory is basically pretty valued.
Due to this fact, anticipated complete returns would encompass the next:
- 1.5% earnings development
- 6.3% dividend yield
- 0.2% P/E a number of growth
In complete, we count on annual returns of 8% over the subsequent 5 years. This can be a first rate anticipated fee of return, however will not be excessive sufficient to earn a purchase suggestion proper now. The inventory has a sure stage of enchantment for earnings buyers as a result of very excessive yield, and regular annual dividend will increase.
Common Company is likely one of the latest Dividend Kings. There are solely 32 firms which have the required 50+ years of dividend development to achieve membership into the unique Dividend Kings.
Common can be a excessive dividend inventory, with a yield above 6%.
That stated, buyers shouldn’t buy shares of an organization merely due to the dividend. Whereas Common Company gives a excessive yield, it additionally has had rising earnings previously decade, which in flip has induced the dividend development fee to say no as effectively.
The corporate’s dividend development has not been accompanied by earnings development, which has resulted in the next dividend payout ratio.
Common Company receives a maintain suggestion from Positive Dividend.
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