The Brand New Dividend King That Yields More Than 5%

The combination of long-term dividend growth and high yield is very unusual for this elite group.
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Universal Corporation (UVV) is currently listed among the 30 Dividend Kings, having been very recently added to the list. Each Dividend King meets the Dividend Aristocrat's primary condition twice over (25 years of consecutive dividend increases).

However, not all Dividend Kings are Dividend Aristocrats. Where Dividend Kings must have 50+ years of increasing dividends, Dividend Aristocrats must meet the following requirements:

  • 25+ years of growing dividends
  • be a member of the S&P 500 Index
  • meet specific minimum size and liquidity requirements.

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About Universal Corporation

Universal Corporation has been operating since 1886 and is the world's largest tobacco leaf exporter and importer. The company is a wholesale tobacco buyer and processor that acts as a middleman between tobacco farmers and enterprises that make pipe tobacco, cigarettes, and cigars.

Universal Corporation is a multinational corporation with a global presence in more than 30 countries.

Universal Corporation has had a challenging couple of years, with earnings-per-share falling by 4% every year since 2010. Years of irregular expansion have occurred, but profitability has remained a challenge. Nonetheless, the company's operation has some positive aspects that could lead to future profits, and they have an attractive dividend yield.

Future Growth Prospects

As the largest importer and exporter of leaf tobacco, they have the world's largest tobacco product manufactuerers among its customers, with six of them being the largest tobacco manufacturers globally. These corporations control more than four-fifths of the global tobacco market, with three-quarters of Universal Corp's annual revenue coming from them, too.

Philip Morris (includes popular brands such as Marlboro), the world's largest cigarette manufacturer, has been Universal's most important customer. Another important customer for them is British American Tobacco (BAT).

As smoking rates drop in the United States and internationally, cigarette companies have needed to find new ways to increase revenue, which became Universal Corp's aim. When FruitSmart got added to the company's portfolio earlier in 2020, it was the first such purchase. FruitSmart is a company that processes and sells fruit and vegetable ingredients to consumers all over the world.

Within the next five years, Universal Corporation wants to generate 10% to 20% of its revenue from sources other than leaf tobacco. Diversifying the business is a wise strategy, given the number of smokers continues to decline year after year.

Future Growth With Silva International

Universal Corp continues to look to strategically diversify its business mix in the future, including pursuing growth possibilities for their plant-based ingredients platform, in addition to producing solid year-over-year performance. When they purchased Silva International in October 2020, they made tremendous progress by expanding their plant-based ingredients platform.

Silva's plant-based ingredients platform was resilient during the pandemic, especially its variety. While demand for ingredients used in restaurant and social venue products decreased, demand for ingredients in grocery and pet foods increased. Universal Corp is building on its recent acquisition of FruitSmart by adding Silva to its platform to offer customers a single source for vegetable and fruit component solutions.

About Silva International

Silva imports about 60 different kinds of dried vegetables, fruits, and herbs from over 20 other countries. Aside from sourcing, they specialize in processing natural materials into custom-designed dehydrated vegetable and fruit-based ingredients for various final products. Vegetable blends, spinach, peppers, carrots, and pumpkin are the top five ingredient product categories.

Due to its unique competencies and enormous capacity to source, process, and manufacture materials, Silva has built a reputation as the 'go-to' provider for 'clean,' natural, specialty dehydrated vegetable and fruit-based components.

Silva also maintains rigorous quality control methods and has long-standing partnerships with farmers and suppliers worldwide, providing a continuous, high-quality supply. Silva's production plant has recently upgraded and enlarged, positioning them to capitalize on rising demand for natural and clean-label products across all of its end markets, particularly the savory and pet food segments, which are both attractive and growing.

Universal Corporation (UVV) Latest Stock and Dividend News

Universal Corp's stock is trading at $57.13 as of July 2, 2021. UVV is included in the S&P SmallCap 600, an index of small-cap company stocks created by Standard & Poor's. Dividends get paid quarterly, with the yield increasing over the last 50 years, making it a Dividend King.

Quarterly Dividend Payout June/July 2018

In May 2018, Universal Corporation issued a $0.75 per share quarterly dividend or $3 annualized. The previous dividend of $0.55 was increased by 36.4%. The dividend's annual yield was 6.2%.

Universal Corp stated they approved an expanded capital allocation plan demonstrating its commitment to long-term shareholder value generation. Universal Corp and its outside consultants conducted a detailed examination of its business and capital allocation strategies.

Universal Corporation's Chairman, President, and CEO George C. Freeman, III said,

Quarterly Dividend Payout – August 2021

In recent years, the dividend payout ratio has steadily increased. In May 2021, Universal Corp announced a quarterly dividend of $0.78 per common share, payable in August 2021. Based on May 25, 2021's closing price of $59.06, this increase represents about a 5% yield and an annualized rate of $3.12 per common share..

Mr. Freeman stated the following:

High dividend yields are only beneficial if the payment is long-term. Before this announcement, Universal's dividend accounted for a significant portion of earnings but barely half of the free cash flows. This leaves a lot of money to put back into the company.

If the dividend continues on its current path, the payout ratio in 12 months might be 97%, which is far too high to be sustainable in the long run.

Fiscal Year Ended March 2021 Highlights

Universal Corp reported its fiscal year 2021 net income, diluted earnings per share, and non-GAAP adjusted operating income increased by more than 20% over the prior year. Additional highlights include the following:

  • Net income of $87.4 million, or $3.53 per diluted share, compared to $71.7 million, or $2.86 per diluted share, in the fiscal year 2020. Net income and diluted earnings per share for 2021 grew by $17.6 million and $0.76, respectively, when restructuring and impairment costs and certain other non-recurring factors were excluded.
  • In the fiscal year 2021, operating income was $147.8 million, compared to $126.4 million in the fiscal year 2020.
  • In the fiscal year 2021, segment operating income was $169.2 million, up by $31.1 million from the fiscal year 2020's segment operating income of $138.1 million.
  • For the fiscal year 2021, consolidated revenues of $2.0 billion increased $73.4 million, owing to the acquisition of the plant-based ingredients companies they purchased in the calendar year 2020, partially offset by lower comparative leaf tobacco shipping quantities.

Final Thoughts

As a new Dividend King, Universal Corporation has achieved an uncommon accomplishment since only 30 companies have achieved the needed 50+ years of a dividend increase to join the elite list.

Even though tobacco use has fallen, Universal Corporation's primary business sees a dependable consumer. Irrespective of the state of the economy, consumers who smoke are inclined to seek out tobacco goods. This ensures that business runs smoothly even in the most unstable of circumstances.

With the major names in the industry as customers, the great bulk of revenues can be predicted year after year. This gives them some stability and helps reassure shareholders that they will be able to survive.

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