Vector, a Discount Cigarette and Value Stock

There is a simpler reason to buy this stock: the current dividend yield is more than 10%. Some may be skeptical of such a high dividend payout, believing it's not sustainable. A quick review of financial statements, however, would seem to suggest that it is. In the most recent quarter, Vector had 7% revenue growth from a year earlier and posted an ROE of 70.19%. The dividend costs the company $26 million a quarter, and there is $206 million in cash sitting on the balance sheet. While the company has high leverage, it does not warrant much concern since that, even without taking in another dollar of revenue, Vector could continue to service its debt obligations for another year and a half without a problem.

Vector's P/E is currently at a premium versus some of the major industry players, such as British American Tobacco(BTI Quote), Altria Group(MO Quote) and Reynolds American(RAI Quote). However, none of those competitors offer as high a yield, and Altria has been assigned a "hold" recommendation by TheStreet.com Ratings. Furthermore, British American Tobacco and Reynolds American have higher betas than Vector, 0.83 and 0.43, respectively. This means they are more volatile than Vector, which is the last thing most investors are looking for at this time.

Vector's stock has sunk 32% this year, the same as British American's and less than Altria's and Reynolds American's.

Vector has been rated a "buy" by TheStreet.com Ratings, which is something only 10.5% of the stocks tracked can claim. If you are still not convinced, ask yourself if Carl Icahn would invest in this company?

He did. He owns 20%.