Lorillard is probably the most attractively valued domestic tobacco company stock that investors could buy today. You’ve got a company that is buying back about 15 million shares of stock each year, raising the dividend by a rate around 10%, and the company is using its free cash flow to move into the e-cigarette market. Oh, and the Newport brand, which makes up 87% of the company’s sales, remains remarkably strong. The company trades at a little over 13x earnings, and gives investors a dividend yield over 5%. Any way I run the numbers, it seems that investors should experience total returns of at least 10% annually over the next 5-10 years, and considering that you have a growing 5% yield, it seems reasonable to think that at least half of your total returns will be in the form of cold, hard cash from the … Read the rest of this article!
With the tenth anniversary of the financial crisis upon us, I have been thinking about the sneaky way in which the bank fortunes of shareholders can be wiped out in a single turn of the investment cycle because lending institutions are so incredibly leveraged that a sharp uptick in unallocated-for defaults can wipe out decades of equity in a matter of months, if not days.
I took the 2008-2010 financial crisis as an important exhibit of the fact that balance sheets always matter, and eventually, leveraged trash collapses into the heap. On the upside, banks and other institutions with strong balance sheets can provide an often neglected source of real, sustainable wealth because no one pays attention to them during the good times when the relatively more leveraged institutions are prospering and during the bad times chastising the collapsed entities for their lack of prudence makes a better story than … Read the rest of this article!