Universal Corporation Boosts Quarterly Dividend 36.4% (UVV)

After hiking its quarterly dividend 1.9% in the first quarter — as the company has done for decades — the Universal Corporation (NYSE:UVV) offered its shareholders a second hike this year by boosting its quarterly dividend another 36.4%.

In addition to these recent dividend hikes, the company has been paying dividends for nine decades and has hiked its annual dividend payout amount for the past 47 consecutive years. While the rising dividend income is the main draw for investors, the company also complemented its dividend distributions with long-term asset appreciation. The share price graph over the past two decades shows many undulations over short time periods. However, over the long term, the capital growth trend represented by the dashed red line on the graph below is clearly evident.

Data Source: Yahoo Finance; Chart Ned Piplovic

The Universal Corporation set its next pay date for August 6, 2018, when the company will distribute its next dividend payment to all its shareholders of record before the July 6, 2018, ex-dividend date.

Universal Corporation (NYSE:UVV)

Headquartered in Richmond, Virginia, and founded in 1886, the Universal Corporation supplies leaf tobacco products worldwide through eight business segments — North America, South America, Africa, Europe, Asia, Dark Air-Cured, Oriental and Special Services. The company procures, processes, stores and distributes leaf tobacco for sale to manufacturers of consumer tobacco products. Furthermore, the company is diversifying by engaging in the research and development growth trials with various partners for non-tobacco agricultural products — such as vanilla and stevia — and produces dehydrated and juiced fruit and vegetable products.

The company boosted its quarterly dividend 36.4% from $0.55 in the previous period to the current $0.75 quarterly distribution. Since this is the second quarterly dividend hike in 2018, the current dividend payout is also nearly 39% higher than the $0.54 payout from the same period last year. The current $0.75 quarterly payout corresponds to a $3.00 annualized dividend and a 4.5% forward dividend yield.

This new yield is almost 30% above the company’s 3.5% average yield over the past five years. Additionally, the company’s current 4.5% dividend yield outperformed the 1.78% average yield of the entire Consumer Goods sector by more than 150% and is more than 37% above the 3.28% average yield of the Tobacco Products industry segment.

While distributing dividends for 90 years, the company’s current streak of consecutive annual dividend hikes is 47 years. Just over the past two decades, the company enhanced its total annual dividend payout amount by nearly 170%, which corresponds to an average growth rate of 5% per year.

The share price started the trailing 12 months with a decline of nearly 30% between late June 2017 and early 2018, when the share price reached its 52-week low of $46.35 on February 5, 2018. After bottoming out in early February, the share price stabilized and traded flat, mostly between $47 and $49 until late May. After the company published its annual report on March 23, 2018, the share price soared almost 30% and erased nearly three-quarters of its losses since June 2017 in a single trading session. The share price continued to rise and reached its 52-week high of $67.00 on May 29, 2018. Since peaking in late May, the share price has pulled back 0.7%, and it closed on June 26, 2018, at $66.50. This closing price was marginally above the $66.05 share price from 12 months earlier, 43.5% above the 52-week low from February and 15% higher than it was five years earlier.

However, investors must keep in mind that the Universal Corporation, or any other tobacco company, should not be viewed as a long-term investment. Some of these companies are currently keeping their share prices propped up through share buybacks or maintain their dividend growth through very high dividend payout ratios. For instance, Philip Morris International (NYSE:PM) has a payout ratio of 113% and Vector Group Ltd (NYSE:VGR) has an even higher ratio of 236%. While the tobacco industry still performs relatively well in foreign markets for now, it is only a matter of time before even those markets follow the U.S. market, where tobacco product use is declining and new products like e-cigarettes do not have a market penetration sufficient to offset those declines. Therefore, investors should view tobacco stocks as a good mid-term source of dividend income. However, investors should keep a close watch for any trend reversals and be ready to close positions in these stocks at the earliest sign of trouble.

Dividend increases and dividend decreases, new dividend announcements, dividend suspensions and other dividend changes occur daily. To make sure you don’t miss any important announcements, sign up for our E-mail Alerts. Let us do the hard work of gathering the data and sending the relevant information directly to your inbox.

In addition to E-mail Alerts, you will have access to our powerful dividend research tools. Take a quick video tour of the tools suite.