Dividend Kings In Focus: Common Company

Up to date on September thirteenth, 2023 by Nate Parsh

Whereas there are lots of dividend-paying shares out there, there are solely 50 shares which have provided a rising dividend for not less than 50 consecutive years. This unique group of shares are known as the Dividend Kings.

You may see the complete downloadable spreadsheet of all 50 Dividend Kings (together with necessary monetary metrics resembling dividend yields, payout ratios, and price-to-earnings ratios) by clicking on the hyperlink under:

Earlier this 12 months, Common Company (UVV) raised its dividend for the 53rd 12 months in a row. This text will evaluation the corporate to find out if the inventory earns a purchase advice right now.

Enterprise Overview

Common Company is the world’s largest exporter and importer of tobacco leaves. It is usually a wholesale purchaser and processor of tobacco and operates as a go-between for farms and the businesses that manufacture cigarettes, pipe tobacco, and cigars. Common Company has been in enterprise since 1886 and is headquartered in Richmond, Virgina.

Common Company has an intensive attain world wide.

Supply: Investor Presentation 

Common Company has a presence in additional than 30 nations and employs in extra of 20,000 everlasting and seasonal workers.

Common Company has had a tough couple of years. Earnings-per-share truly declined from 2010 to 2023. There have been years of sporadic development, however general EPS declined in that 13-year interval.

Nonetheless, the corporate’s enterprise has some brilliant spots that might result in future returns, to not point out a really interesting dividend yield, which presently stands at practically 6.4%.

The corporate reported robust first-quarter outcomes for fiscal 12 months 2025, with revenues reaching $597.1 million, a 15% improve from the earlier 12 months. Working revenue rose 56% to $17.2 million, pushed by greater gross sales in each the Tobacco and Components segments. The Tobacco Operations section noticed elevated demand and better gross sales volumes, benefiting from strategic crop buying, whereas the Components section grew on account of greater gross sales volumes and improved market situations.

The corporate expects continued robust efficiency within the Tobacco section for the remainder of the 12 months, supported by a low stock of uncommitted tobacco and better inexperienced tobacco costs. Common’s Lancaster, Pennsylvania facility enlargement is on observe, anticipated to be operational within the second half of the fiscal 12 months, contributing to future development within the Components section by fiscal 2026. The corporate additionally famous elevated debt ranges, which ought to lower as dedicated tobacco inventories are processed and offered.

Along with monetary efficiency, Common stays targeted on sustainability, emphasizing progress towards its greenhouse fuel emissions discount objectives. The corporate introduced third-party verification of its emissions knowledge, reinforcing its dedication to clear and accountable environmental practices. Total, Common continues to leverage its international footprint and market experience to navigate challenges and ship constant outcomes.

Development Prospects

Because the world’s largest exporter and importer of leaf tobacco, Common Company affords a dimension and scale that rivals can not match.

Which means that the corporate can rely the biggest tobacco product producers on the earth amongst its prospects.

Supply: Investor Presentation

Six of Common Company’s prime prospects are among the many largest tobacco producers on the earth. These corporations management greater than four-fifths of the worldwide tobacco market.

Greater than 60% of Common Company’s annual income normally comes from these prospects. Counting the biggest names within the sector as prospects probably implies that the overwhelming majority of revenues may be relied upon. This offers the corporate stability and might reassure shareholders that the enterprise may be sustainable.

Common Company additionally strives to supply most of its gross sales to satisfy anticipated demand. Which means that the corporate targets its stock to prospects with dedicated gross sales orders. This permits Common Company to keep away from being caught holding merchandise or being pressured to promote at a lower cost to cut back stock.

Lastly, as smoking charges decline within the U.S. and elsewhere, corporations within the tobacco sector should work out different methods to develop income.

Supply: Investor Presentation 

Common Company is trying to just do that. The corporate made its first such acquisition earlier in 2020 when it added FruitSmart Inc. to its portfolio. FruitSmart processes fruit and vegetable elements and markets them to prospects world wide.

Subsequent, Common acquired Silva Worldwide, a privately-held dehydrated vegetable, fruit, and herb processing firm. Silva procures greater than 60 sorts of dehydrated greens, fruits, and herbs from over 20 nations world wide.

The corporate continues to make bolt-on acquisitions, resembling the acquisition of Shank’s Extracts, a privately-held specialty ingredient, flavoring, and meals firm with a portfolio of over 2,400 extracts, distillates, pure flavors, and colours.

Diversifying the enterprise is a really prudent transfer, in our opinion, because the variety of people who smoke declines with every passing 12 months.

Aggressive Benefits & Recession Efficiency

Common Company’s chief enterprise tends to see a dependable shopper, even when tobacco utilization has declined. Shoppers who do smoke are more likely to hunt down tobacco merchandise whatever the state of the economic system. This makes enterprise dependable even in an unreliable time.

Whereas earnings development has been weak in recent times, Common Company navigated the final recession very nicely. The corporate’s earnings-per-share earlier than, throughout, and after the Nice Recession are listed under:

2006 adjusted earnings-per-share: $3.48
2007 adjusted earnings-per-share: $4.02 (15.5% improve)
2008 adjusted earnings-per-share: $4.32 (7.5% improve)
2009 adjusted earnings-per-share: $5.68 (31.5% improve)
2010 adjusted earnings-per-share: $5.30 (6.7% lower)
2011 adjusted earnings-per-share: $3.25 (38.7% lower)
2012 adjusted earnings-per-share: $4.66 (43.4% improve)

Common Company’s earnings-per-share improved greater than 41% from 2007 by 2009, throughout a tough market setting for a lot of corporations.

Earnings-per-share didn’t begin to undergo a steep decline till after the worst of the recession had occurred. It needs to be famous that the corporate nonetheless has not reached its 2009 excessive for annual earnings-per-share.

Typically, we consider that the comparatively resilient demand for tobacco leaves will maintain producing comparatively strong outcomes for the corporate even throughout difficult financial intervals. This was demonstrated once more each through the COVID-19 pandemic in 2020 and the present robust macroeconomic panorama.

Valuation & Anticipated Returns

Like all shares, Common Company’s whole returns will include dividend funds, earnings development, and valuation adjustments. Utilizing the annual dividend of $3.24, shares of Common Company yield 6.4%.

The dividend payout ratio has climbed steadily in recent times. It was 84% in fiscal 2023, however the projected payout ratio for this fiscal 12 months is a barely extra cheap 66%. We don’t consider a dividend lower is imminent, however we advise warning relating to the dividend. On the very least, dividend development will probably be weak till earnings development accelerates.

As a result of firm’s moderately weak efficiency for profitability during the last 10 years, we anticipate modest earnings development of simply 1.5% yearly over the subsequent 5 years. Nonetheless, it will positively contribute to shareholder returns.

Lastly, enlargement of the valuation a number of shouldn’t be unlikely in our view. With an anticipated earnings-per-share of $4.90 for fiscal 12 months 2025, shares are buying and selling with a price-to-earnings ratio of 10.4. With our goal valuation of 12 instances earnings, a number of enlargement may add 3.3% yearly to returns over the subsequent 5 years.

Subsequently, anticipated whole returns would include the next:

1.5% earnings development
6.4% dividend yield
3.3% a number of enlargement

In whole, we count on annual returns of 11.2% over the subsequent 5 years. That is sufficient of a projection to warrant a purchase ranking for Common Company. We be aware that the inventory has a sure stage of attraction for revenue buyers as a result of very excessive yield, even when dividend development is more likely to stay muted.

Last Ideas

Common Company is without doubt one of the newer additions to the Dividend Kings. There are solely 53 corporations which have the required 50+ years of dividend development to achieve membership into this unique group.

Common can also be a excessive dividend inventory, with a yield approaching 7%.

Whereas Common Company affords a excessive yield, it additionally has had issue rising earnings in additional than a decade, which in flip has precipitated the dividend development charge to sluggish significantly as nicely.

The corporate’s dividend development has not been accompanied by earnings development, which has resulted in a better dividend payout ratio. The excellent news is that the anticipated payout ratio for the present fiscal 12 months needs to be decrease than earlier years.

As well as, whole return potential earns Common Company a purchase ranking from Positive Dividend.

The next articles comprise shares with very lengthy dividend or company histories, ripe for choice for dividend development buyers: