Dividend Increase: Reynolds American (RAI) 2017

Earlier this year RAI announced their dividend increase for the year of $0.05 per share, bring their quarterly dividend up to $0.51 from last years $0.46, good for a 10.87% increase.  The increase beats my expectation by a penny.  The current yield stands at 3.08% based on the closing price of $66.27.  This marks the 9th consecutive year of dividend increases from RAI.

It’s bitter sweet having invested in RAI.  Sweet, because it’s been a good ride in price appreciation and dividend growth, but bitter in that RAI is being bought out by British American Tobacco, although I can’t say I’m surprised, and I’ll have to determine what I want to do after the takeover goes through.  Here’s what I wrote in July 2016:

“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.”‘

RAI Dividend History:

This chart may show why I’m a little bitter of the buyout.  RAI has produced stellar growth of its dividend.  9 straight years with an increase. 3 years with two increases in the same calendar year.  Going back to 2004, the dividend has grown 329%.  It will be hard to replace that in my portfolio.

RAI vs S&P 500:

What good is dividend growth, if you’re not seeing share price increase.

Well, the good news is RAI has handed the S&P500 it’s ass in terms of returns.  It’s not even close folks, looking at just the last 10 years.  We’ll have to see what happens with the BTI merger.

RAI Stats:

Market Cap: $94.55 Billion

PE Ratio: 28.75

Beta: 0.33

Dividend Yield: 3.08%

Profit Margin: 26.23%

Total Cash: 3.15 Billion

Total Debt: 13.15 Billion

Payout Ratio: 80.09%

Conclusion:

It’s been a good ride.  Unfortunately things will be changing over for RAI shareholders eventually.  There shouldn’t been any issues arising with the merger gaining approval in the states, however things move a little slower across the pond.  At least in the mean time we can still enjoy the nice dividend.  I’m less inclined to hold onto shares of BTI after the merger takes place and will most likely sell out and buy more MO and PM instead.  At this point I believe RAI to be fairly priced.  The only things I can see driving the price higher are earnings beats from either RAI or BTI, and general macro economic factors such as a tax holiday for foreign profits or a weakening US dollar.

 

 

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