(Story updated to add that British Tobacco hit a 52-week high, days after it said it will raise its dividend by 11% and launch a $2 billion share-buyback program this year.)
BOSTON (TheStreet) -- U.S. tobacco stocks had a killer 2011 with an average gain of 30%. Although they're off to a wheezing start this year, companies including Altria Group (MO) and Reynolds American (RAI) still represent good value as they're using their huge cash flows to buy back shares and lift already hefty dividends.
U.S. tobacco stocks are up an average of 3.2% this year, while the S&P 500 has risen 8.8%, according to S&P.
While big share-price appreciation is great, just as important is the dividend rate and share-buyback programs, and tobacco companies are among the leaders in this mode of boosting shareholder value, which they fund with their huge cash flows. S&P Capital IQ says that the four U.S. tobacco makers it follows have an average dividend yield of almost 5%, and they each raised their dividends at a healthy pace in 2011, ranging from 8% to 38%. "The tobacco companies also executed billions of dollars in share repurchases in 2011, and we believe they are likely to continue this strong pace in 2012 and beyond," the firm said in a recent research note. And although they're seeing shrinking unit sales in the U.S., on order of 4% to 5% annually, the tobacco companies' sales are growing internationally and they still have plenty of pricing power to keep profits growing, which serves as an inflation hedge. The same goes for their international competitors because, despite governments' efforts to curb the habit, the number of smokers worldwide is expected to continue to grow. Morningstar analysts estimate that "there will be 1.4 billion smokers globally by 2020, up from 1.3 billion today, even if the percentage of the population that smokes declines 1% annually." Although tobacco companies will likely continue to face challenges in the form of new government regulations and litigation over health issues, it's important to keep in mind that they are still money machines as each has a record of steady profit growth and increasing cash flow. What follows is a summary of the prospects of the six largest publicly traded tobacco companies in the world, four from the U.S. and two from the U.K., in order of their domestic market share:
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