Tobacco giant Reynolds American (RAI) is the second-biggest cigarette maker in the country, with premium brands such as Camel, Kool and Natural American Spirits. Reynolds is a typical "sin stock," sporting recession-resistant sales and a sticky customer base and generating the cash to pay for a hefty dividend yield. Right now, that yield adds up to 5.11%.
Reynolds is a business in decline. Its customer base is dying a slow death (in a manner of speaking) as overall tobacco use declines in the U.S. Because the firm sold off its international rights to Japan Tobacco in 1999, high-growth markets in Southeast Asia and Latin America are off-limits to RAI. But if the U.S. tobacco industry is in a slow decline, "slow" is the operative word: It's contracting at less than 5% each year. With new initiatives like the Vuse brand of electronic cigarettes offering some hints at growth, Reynolds should maintain its cash-generation engine for the foreseeable future.From a financial standpoint, RAI's balance sheet is in good shape, with $2.7 billion in cash offsetting a reasonable $6.2 billion debt load. Net margins consistently come in above the 20% mark, which means that management is able to hold on to a whole lot of each dollar that comes through the door. Expect a hike to RAI's 63-cent quarterly dividend payout.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV