4 Promising Tobacco Stocks: MO, RAI, LO, PM

Dividend stocks should be a part of everybody’s long-term stock portfolio. Let’s take a look into the tobacco industry, an industry that I have analyzed by the best yielding dividend stocks a few months ago. The industry is shadowed by negative volume growth and law suits. A positive is the strong cash flow which tobacco stocks generate. In addition, they pay huge dividends and have a very stable business. The industry has a total market capitalization of $235 billion, the average P/E ratio is 14.3, P/B ratio 4.1 and the average dividend yield amounts to 4.4 percent.

I screened stocks from the industry with a dividend yield more than 3.5 percent and a 3-Year Dividend Growth of more than five percent. Below are four major dividend paying players from the tobacco industry that met these criteria:

Here are my four most promising results:

1. Philip Morris (PM) has a market capitalization of $121.1 billion, generates revenues in an amount of $71.5 billion and a net income of $7.9 billion. It follows P/E ratio is 15.8 and forward price to earnings ratio 13.2, Price/Sales 1.7 and Price/Book ratio 33.2. Dividend Yield: 3.7 percent. Years of Consecutive Dividend Increasing: 2 Years. 3-Year Dividend Growth: 11.6 percent. The company paid dividends since 2008. The expected EPS growth for next year amounts to 9.2 and 11.6 percent for the upcoming 5 years. The beta ratio is 0.83.

2. Lorillard (LO) has a market capitalization of $15.3 billion, generates revenues in an amount of $6.3 billion and a net income of $1.1 billion. It follows P/E ratio is 15.1 and forward price to earnings ratio 12.9, Price/Sales 2.4 and Price/Book ratio is not calculable due to a negative book value per share of 5.97. Dividend Yield: 4.7 percent. Years of Consecutive Dividend Increasing: 6 Years. 3-Year Dividend Growth: 12.1 percent. The company paid dividends since 2008. The expected EPS growth for next year amounts to 10.3 and 9.5 percent for the upcoming 5 years. The beta ratio is 0.43.

3. Reynolds American (RAI) has a market capitalization of $22.1 billion, generates revenues in an amount of $8.6 billion and a net income of $1.4 billion. It follows P/E ratio is 16.5 and forward price to earnings ratio 13.4, Price/Sales 2.6 and Price/Book ratio 3.3. Dividend Yield: 5.6 percent. Years of Consecutive Dividend Increasing: 6 Years. 3-Year Dividend Growth: 5.7 percent. The company paid dividends since 2004. The expected EPS growth for next year amounts to 6.8 and 8.0 percent for the upcoming 5 years. The beta ratio is 0.63.

3. Altria (MO) has a market capitalization of $55.9 billion, generates revenues in an amount of $23.9 billion and a net income of $3.4 billion. It follows P/E ratio is 16.4 and forward price to earnings ratio 12.4, Price/Sales 2.3 and Price/Book ratio 12.1. Dividend Yield: 6.1 percent. Years of Consecutive Dividend Increasing: 45 Years. 3-Year Dividend Growth: 9.4 percent. The company paid dividends since 1928. The expected EPS growth for next year amounts to 6.9 and 6.4 percent for the upcoming 5 years. The beta ratio is 0.46.

Also take a look at my screening results of the eight best yielding tobacco stocks. The average price to earnings ratio amounts to 16.0 while the average dividend yield amounts to 5.6 percent. Price to book ratio is 9.6 and price to sales ratio 1.8.

Building Bargains: Why REITs Look Attractive: CLI, OFC, ACB, EQR,

Mortgage rates are at historic lows and house prices have tumbled, but for the majority of Americans who already own homes, the best real estate deals might be in shares of professionally managed property portfolios.

The 30-year mortgage rate is near 4%, the lowest level in 40 years of records, according to Freddie Mac. Despite such cheap financing -- and a smorgasbord of government perks to lure homebuyers -- the bargains have only gotten better: The S&P/Case-Shiller Home Price Index has fallen by nearly a third over five years.

But as investments go, single-family houses aren't ideal. They typically pull in less rent and generate more expense per square foot than multifamily or commercial property, say professional real estate investors.

The good news is that deals have gotten better in managed property portfolios, too. Real-estate investment trusts, or REITs, mostly buy property, and they avoid paying taxes on their income so long as they pay the bulk of it out to shareholders as dividends. Investors buy REITs as they would regular stocks.

REITs have taken a pummeling recently: As of Thursday, the MSCI U.S. REIT Index had declined 19% from its July 22 peak -- worse than the 14% drop for the Standard & Poor's 500-stock index.

That's an opportunity, says Kevin Beddell, manager of the JPMorgan U.S. Real Estate fund (SUSIX). "It's a Goldilocks situation, with low interest rates but also strong demand and tight supply," he says, "and we've had a nice correction, so now prices are attractive, too."

REIT investing can be tricky, however, because the portfolios can specialize in a vast array of real estate properties, from hotels to corporate data centers.

One way for investors to evaluate different portfolios is to compare lease periods for the properties they hold. When leases are short, cash flow changes more quickly in response to economic conditions, for better or worse. When leases are long, the investments are usually steadier.

That puts hotel REITs at one extreme of the universe, because their "leases," or room bookings, often cover only a night or two, and health-care facilities near the other end, because their leases often last 10 or 15 years, according to Mr. Beddell. In between are multifamily housing (typical lease: one year), industrial warehouses (three to five years) and shopping malls (seven to 10 years, longer for department stores).

As with any investment, the most popular parts of the market aren't necessarily where the best opportunities are to be found. Office space in the central business districts of New York City, San Francisco and Washington, D.C., is in strong demand, but many REITs focused on such properties have dividend yields of only 2% to 3%.

Mr. Bedell prefers high-quality suburban office property, which offers more income for the price. "It's not quite as prized as property in city centers," he says. "But the discounts in the suburbs are overdone right now."

Among Mr. Beddell's favorite REITs is Mack-Cali Realty (CLI: 26.75, -0.44, -1.62%), based in Edison, N.J., which has diversified property on the eastern seaboard and offers a dividend yield of 6.4%. It's a stable portfolio and the company is able to borrow at attractive rates, he says.

Another is Corporate Office Properties Trust (OFC: 21.78, -0.65, -2.90%), based in Columbia, Md., whose shares have lost 28% since the end of June, perhaps because of the portfolio's focus on government tenants, especially in the defense field. Investors fear defense spending cuts, but the REIT is focused on information technology tenants that are better protected than weapons makers from cuts, according to Mr. Beddell. The dividend yield is 7%.

Multifamily housing is also well positioned, says Haendel St. Juste, an analyst with Keefe, Bruyette & Woods. With the single-family market having tanked, there's "huge negative sentiment" toward buying a home, he says. Each 1% drop in the homeownership rate brings more than a million new renters, he estimates, and supply hasn't kept pace. What's more, the population of 20- to 34-year-olds, a key renting demographic, is swelling, says Mr. St. Juste.

Mr. St. Juste recommends shares of AvalonBay Communities (AVB: 114.05, -4.35, -3.67%) and Equity Residential (EQR: 51.87, -1.72, -3.21%), which focus on pricey coastal areas like New York, D.C. and Seattle, rather than "sun belt markets, where the jobs don't offer a lot of pricing power for landlords." (Also read, 'ETFs for Operation Twist.')

Health care REITs could offer opportunities as well. Worries about Medicare cuts hurting tenants have turned investors off, but there are two reasons why shares might perform better than expected. First, REIT managers usually require that tenants earn much more than they need to cover their rent, so lower profits wouldn't necessarily change the cash flow on the real estate. Second, property owners are in a good position to help healthcare operators reduce costs -- for example, by combining more operations into a given space.

Mr. Beddell points to HCP and Ventas as good buys. Both have diverse portfolios that include labs, office space, assisted living facilities and more. HCP has the higher yield, at over 5%.

Of course, for investors who don't yet own homes, and who live in markets where prices have plunged, a house purchase might be a better deal than a REIT. The U.S. homeownership rate recently hit a 13-year low. Americans seem newly skeptical of the notion that homeownership is always a great investment -- which is as good a sign as any that it's once again a pretty good one.

Mark Hulbert: Video – Analogies to the 1930′s

Aside from the poor audio quality, Hulbert has some very good insight into the comparisons of this market/economic condition to what we are seeing these days.

Shameless data mining is what Hulbert says is what is masking the realities.

Skip to about 2 minutes in to hear the interview with the technological blip taken care of.

Martin Armstrong: Who Will Collapse First?

from King World News:

With continued turmoil in global markets, today King World News interviewed internationally followed Martin Armstrong, Founder and Former Head of Princeton Economics International, Ltd.. Armstrong’s firm rose to be perhaps the largest multinational corporate advisor in the world and by the 1997 Asian Currency Crisis, Armstrong was invited by China and he flew to Beijing to advise the Central Bank. Many people don’t realize that Congress went to Martin Armstrong for help as the fires were burning during the financial collapse of 2008.

When asked what Congress wanted, Armstrong replied, Read More @ KingWorldNews.com

Copper Lacking Buyers

So far my target window for a significant low in nearby copper prices in the 3.10-3.06 area is looking pretty accurate. That said, before we run out and load up on copper, it would behoove us to realize that despite holding right in my optimal target zone, the price structure has not yet been able to stage any sort of meaningful rally.

This is a very disconcerting sign, and warns us that it might be prudent to watch copper for a while longer prior to entering the long side. In fact, lack of any buying activity might be telling us that copper still has some unfinished business on the downside.

If that proves to be the case, where could it go? A sustained break below 3.0700 will point nearby copper to 2.9800-2.9200 thereafter.

Attached Images

Leading Economic Indicators: A U.S. Recession?

There is a contagion among those forward looking indicators that we only see a business cycle recession, says Lakshman Achuthan, ECRI

The Economist - 1st October-7th October 2011

The Economist - 1st October-7th October 2011

English | 100 pages | HQ PDF | 102.00 Mb


read it here