Acquisition RAI

Reynolds-American-LogoIt’s that buying amazing assets time and with this one I decided to expand my exposure into cigarette industry by purchasing Reynolds American Inc. (RAI). I found the company being at very reasonable valuation for its high quality. Now, as I don’t smoke myself and have been tobacco free for over 5+ years, I do understand that there is a huge demand for these products in U.S and around the world. Whats not to like? It is extremely lucrative business model with highly addicting products. But, it is more than that. I really like the way tobacco companies are positioning and almost reinventing themselves into new vapor products. I also believe that whenever marijuana legalization occurs on federal level, these companies like Reynolds American Inc. (RAI) will be perfectly positioned to acquire and dominate the industry altogether.

Previously, I kind of questioned Reynolds American Inc. (RAI) acquisition of Lorillard and taking over the Newport brand, but everything seems smooth sailing. On Tuesday, the company reported through Wall Street Journal a 42% increase in first quarter sales. In addition, the company increased cigarette volume by 34%. The U.S. leading menthol brand Newport has improved greatly through better retail placements and has increased its market share 14% this last quarter. On top of that, the company has recently raised its dividend 16.6%.

Company Overview: Reynolds American Inc. was founded in 2004 and is headquartered in Winston-Salem, North Carolina. Simply explained, the company operates through its subsidiary holdings by manufacturing and selling regular cigarettes, chewing tobacco, vapor cigarettes other tobacco products around the world. The main company holdings include R. J. Reynolds Tobacco Company, American Snuff Company, Santa Fe Natural Tobacco Company and Niconovum AB. These subsidiaries hold some of the worlds most leading brands in tobacco industry such as: Newport, Camel, Pall Mall, Kent, Doral, Capri, Natural American Spirit, Grizzly & Kodiak brand names. The company primarily distributes its products through direct wholesale deliveries from local distribution centers and public warehouses into variety of retail stores. In 2010, Reynolds American’s companies sold around 28% of all cigarettes sold in U.S.

  • Dividend Yield: 3.5%
  • 3Yr Dividend Growth Rate: 9.4%
  • Payout Ratio: 71.8%
  • P/E: 18.4
  • Consecutive Years of Dividend Raises: 6

I purchased 31 shares for the price of $47.34 adding $52.08 to my annual dividend income.

This is the 3rd time I am initiating a stock acquisition this year. This transaction is my additional purchase of RAI shares into the portfolio. As of today, I now hold 47 shares of this company. Currently, RAI ownership stake represents to be around 2.9% of my current portfolio value.

The 12-month dividend income increased to $2,760.

Thank you for reading & have a great day!

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4 Comments

  1. Investment Hunting on April 26, 2016 at 15:47

    I’m a tobacco investor as well. I don’t smoke nor do I endorse smoking. but, I do believe in freedom of choice. If someone wants to smoke it’s their choice. I like this buy. Out of curiosity, why buy RAI over MO or PM?

    • DividendVet on April 26, 2016 at 16:18

      I also strongly believe in freedom of choice in these matters. The demand for tobacco is there and this company has the supply.

      I chose RAI over its competitors mostly due to the fact that I am full on PM. Although, MO is something I would like to own in the future, though it had a bit higher valuation than I normally like, but either way their fundamentals are very much alike. RAI’s dividend raise was truly solid! Both of these companies are very well established and money making machines and can’t go wrong with either one of them.

      Take care.

  2. Captain Dividend on April 27, 2016 at 22:41

    It will be interesting to see the impact on big tobacco if marijuana is ever legalized. I mean that could open such a big market for them. I don’t know if they would go so far as to market marijuana based foods but they would surely experience some real growth there. I really don’t see why it isn’t legal, I mean alcohol is legal and that is more addictive from what I read. Thanks for the update.

    • DividendVet on April 27, 2016 at 23:57

      Yeah, it is going to be interesting how everything will unfold with that.

      Thanks for stopping by!

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