Thursday, January 10, 2013

New Purchase - LO

I purchased 11 shares of Lorillard at $113.74 plus commissions.  Lorillard is doing a 3 for 1 stock split within the next week; this purchase came with due bills (I will receive the extra shares).  At this purchase price I can expect to receive $68.20 annual dividends on a 5.45% yield before transaction costs.  I anticipate a dividend hike before the next payment, we'll have to see what happens there.

Tobacco stocks offer dividend growth investors the rare combination of high current yield coupled with high expected dividend growth.  It's the best of both worlds and LO is no exception.  Lorillard is best known for its Newport brand of menthol cigarettes, which has been gaining market share the past few years.  They have also expanded into electronic cigarettes with Blue e.cigs and sell budget smokes with a couple off labels.  Lorillard claims to be the oldest publicly traded company on the NYSE with its founding in 1760.  That's over 250 years of continuous operation. 

I just started working night shift which will be great for buying stocks.  There isn't as much to do at night so I can just sit there and see what opportunities the US markets present... in real time.  I'm pretty happy with the purchase price on this one as I have a buy price of $115 and have it fairly valued at $125.  Morningstar has it listed at $122 which helps to validate my beliefs.

Smoke 'em if you got 'em!

12 comments:

  1. I like the purchase. I was close to adding more shares of LO or PM recently myself and may do so soon. The price is still close to my cost basis. Good luck.

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    1. I'm currently content with my PM position and will probably refrain from buying shares unless it happens to go down around $80. Since the allocation is full I plan to wait for bargain prices with that one. Instead of being super concentrated in PM I decided to add more Lorillard from the industry. I'm about 2/3 PM, 1/3 LO in tobacco. I like that mix. For the time being I'm likely done buying LO too unless the price drops to around 105 or so.

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  2. CI,

    Nice move here. Gotta love that high yield backed by above average dividend growth. The best of both worlds! I think LO is pretty attractively valued here in that $113-119 range. Those dividends are pretty juicy; enjoy them!

    Best wishes.

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    1. Promise I will. haha. It will be interesting to see what kind of increase LO does this year. It's hard to make predictions. I'm happy with a 5% increase so I'll leave it at that.

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  3. My resource says that LO has 5.4% yield, 23.33% dividend growth 5yr rate and consecutive increases for 4 years. I didn't have this stock in my watch list, so thanks for the tip. I will be adding it, although at this point it doesn't meet my criteria to invest in this stock yet. If it keeps up, next year I will invest.

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    1. Hey Martin,

      I was going to visit your site to see what you've been up to, but I've been put on the spam list! haha, you blocked my IP. No worries.

      LO will have a 5 year streak of increases soon. I expect the dividend to increase within the next month or two. I really don't see how it's possible to maintain dividend growth greater than 20%, but I'd be thrilled to see increases in the 5-10% range. The yield is already high with this one.

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    2. CI, What's your IP? Send it to my email if you do not want to post it on the screen. I will release it. It definitely wasn't because of you, but because of some other spammer sharing the same IP. I definitely would be happy if you can visit my web.

      The growth is really impressive as well as the yield and they've been doing it for 4 years so far. As time go by the growth rate will be dropping, smoothing, but still, it really is impressive. I want to see, if they were increasing this constantly at this rate or they just jumped one year and the others were mediocre. That would make the 5 yr average this large, but not sustainable.

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  4. Looks interesting... what valuation method did you use to come up with $125? I am going to investigate some more myself and may pick up some myself. Thanks for the tip.

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    1. Dustin,

      I use a variety of methods: dividend discount model, discounted cash flow, average historical p/e, average historical yield, etc. Since Lorillard was seperated from Loews less than 5 years ago, I couldn't use historical valuation techniques with this one(there isn't enough data). I did the valuation a few months back but I must have used DDM and DCF.

      I try to update my buy price spreadsheet every quarter if possible. There are certain companies such as KO, MCD, JNJ, & PG that I plan to hold forever and am not opposed to paying a premium over fair value. I bought shares of KO last month, at a premium, but know I'll likely still have the shares 20 years from now.

      I also think FAST Graphs is another great way to do valuations. The service is not free, but they do offer a 2 week trial. I recommend checking it out, it's the best way I've seen. You can always cancel before the trial ends. I recently found out that morningstar lists fair values. I trust them and do pay attention to it now that I know where it is.

      CI

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  5. I really like LO, I currently own MO (Altria) and am very happy with the performance.

    I would like to thank you for your service. While working night shift I would recommend getting some good investment books to increase your arsenal. I look forward to following you.

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    1. Thanks BBB! I love when people come up and shake my hand thanking me for my service! It's a feeling I can't quite describe, but gives me goosebumps.

      Reading books is a good idea! I tend to listen to conference calls and read articles. I listened to the Kinder Morgan conference call last night.

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