Today we continue with a special 5-part series from Bob Ciura, contributing editor of Sure Dividend, highlighting the 5 highest-yielding Dividend Kings — a select group of 39 stocks that have increased dividends for over 50 years.
Read Part 1 here…
Read Part 2 here…
Read Part 3 here…
Tobacco stocks typically offer high dividend yields. A select few can also raise their dividends each year. While tobacco is no longer a growth industry, the major producers are still highly profitable with strong cash flows. This allows them to distribute a high dividend payout to shareholders.
Universal Corp. (UVV) has increased its dividend for 50 consecutive years, making it a Dividend King. It is not a dividend growth stock; the company usually announces small increases in the low-single digits on a percentage basis each year. However, investors primarily interested in high dividend income could find Universal stock appealing.
Business Overview & Growth Prospects
Universal Corporation is the world’s largest leaf tobacco exporter and importer. It is the wholesale purchaser and processor of tobacco that operates between farms and the companies that manufacture cigarettes, pipe tobacco, and cigars. Universal Corporation was founded in 1886 and is headquartered in Richmond, Virginia.
The company is off to a good start to the current year. In the most recent fiscal quarter, the company generated revenues of $450 million, up 22% from the previous year’s quarter. Revenue grew 16% during the first half of the current fiscal year, reaching $800 million due to a stronger product mix.
Universal’s adjusted earnings-per-share totaled $0.66 during the second quarter. This lifted Universal’s H1 earnings-per-share to $0.96.
Universal Corporation operates in an industry that has seen its peak, and has declined for many years. At the same time, there is no need for significant capital expenditures, which results in relatively high free cash flow. This has allowed the company to raise its dividend each year.
Dividend Analysis
Universal stock is appealing for income on the surface, due to the 5.7% yield. This compares very favorably to the S&P 500 Index, which on average yields 1.4%. However, investors should always take a look under the hood so to speak, to determine if a stock’s dividend payout is safe.
On one hand, Universal’s payout ratio is quite high, at 71% expected for 2022. On the other hand, the payout ratio is actually expected to decline from a previous high of 87% in 2020. And, Universal has raised its dividend for 50 consecutive years. This itself is a signal that the company has the ability to generate enough cash flow to pay the dividend, with a small raise each year.
Investors should not expect much earnings or dividend growth for the company moving forward. But income investors may find Universal stock attractive for its high dividend yield.
