Dividend Increase: Reynolds American Inc (RAI)

***This is not investment advice.  Go see a professional!!!***

No, I’m not drunk writing about a dividend increase from RAI again.  This is the second increase announced for the year bumping up the quarterly amount to $0.46 from $0.42, representing a 9.5% increase.  When factoring in the 2 increases for this year compared to a year ago of $0.36, we arrive at a total overall increase of 27.78% increase to the dividend year over year.

They also announced a $2Billion stock buyback.

The bad news, they missed adjusted EPS by $0.03 on lower cigarette volumes and tightened up earnings expectation for the fiscal year, leading to a 4.42% drop in the share price.  I’m not sweating it though.  I’m in it for the long haul.

Some figures pulled directly from RAI investor site:

RAI vs S&P500 (w/ dividends reinvested)

Start date: 01/02/2004 01/02/2004
End date: 07/25/2016 07/25/2016
Start price/share: $7.21 $111.23
End price/share: $52.31 $216.65
Starting shares: 1,386.96 89.90
Ending shares: 2,696.91 113.77
Distributions reinvested/share: $11.98 $33.90
Total return: 1,310.76% 146.48%
Average Annual Total Return: 23.44% 7.44%
Starting investment: $10,000.00 $10,000.00
Ending investment: $141,038.52 $24,641.49
Years: 12.57 12.57

RAI vs S&P500 (not reinvesting dividends)

Start date: 01/02/2004 01/02/2004
End date: 07/25/2016 07/25/2016
Start price/share: $7.21 $111.23
End price/share: $52.31 $216.65
Distributions collected/share: $11.98 $33.90
Total return: 791.71% 125.25%
Average Annual Total Return: 19.02% 6.68%
Starting investment: $10,000.00 $10,000.00
Ending investment: $89,191.85 $22,538.38
Years: 12.57 12.57

Not bad for a boring company and shows the importance of a growing dividend.

If we look at this earning report of $0.58 and factor in the new dividend amount of $0.46 we get a dividend payout ratio of 80% (in line with other tobacco companies).

RAI has 8 years straight of increasing their dividend (with a few years of 2 increases in the mix).  Below is some data and charts I put together on the history of RAI’s dividend since going public again in 20o4.

All data pulled from RAI investor website:

As you can see, the average dividend increase for the last 12 years has rang in at 11.36% annually, total annual payout grew at 10.95%.  Both figures far outpacing inflation.

Let’s look at other stats on RAI:

Beta= 0.60

Profit Margin = 55%

Total Cash= $4.46 Billion

Total Debt= $13.72 Billion

Market Cap= $71 Billion

PE Ratio= 10.55

Trading 8% below all time high.

The former Nabisco owner has a long and interesting history, including being 42% owned by British American Tobacco.  I like to view that high of an outside ownership as a safety net for RAI.  If the value took a severe downturn or BAT was looking to try and squeeze out some cost savings (like RAI did with purchasing Lorillard last year), BAT would increase ownership or outright purchase RAI.

I’m sitting long on RAI for the foreseeable future (probably 20+ years) and still holding to my expectation of just an 8% increase to the dividend in 2017.  Anything extra is just extra disposable income, which doesn’t suck.

I’m also expecting announced increases from my other 2 tobacco holdings in the next 30-45 days from MO and PM.  For MO, I’m hoping to hear about a 4cent increase, and PM an increase of 5 cents.

 

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