Last up is tobacco firm
, the No. 3 cigarette manufacturer in the U.S. News that the FDA was considering regulatory action against menthol cigarettes was a major black cloud for Lorillard, whose mentholated Newport brand contributes around 94% of sales for the firm. While those black clouds have dissipated a bit, investors are still a bit anxious about the potential for downside in LO.
As a sin stock, Lorillard has some considerable advantages. For starters, it boasts a product with sticky customers, recession-resistant sales and deep net margins. It also pays out a generous 5.47% dividend yield right now, as a result.
While the domestic tobacco business is dying a very slow death, Lorillard's category is actually seeing some growth. Mentholated cigarettes have seen their share of the overall market slowly creep higher, offsetting the declining number of smokers in this country (Lorillard sold off the international rights to Newport in the late 1970s, so international growth rates aren't a consideration here.) Because LO owns more than a third of the mentholated cigarette market, it's been benefitting disproportionately from that trend. With a strong balance sheet and excellent cash-flow generation, the firm looks more than capable of offering investors a near-term dividend hike.
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At the time of publication, author had no positions in stocks mentioned.