High Dividend 50: Universal Corporation – Sure Dividend

Up to date on June twenty seventh, 2024 by Bob Ciura

Excessive-yield shares with dividend yields above 5% are interesting to earnings buyers. Nonetheless, not all high-dividend shares are created equally.

Some have safe dividend payouts, however others are in questionable monetary situation, leaving shareholders susceptible to a dividend reduce in a downturn.

With this in thoughts, we created a whole record of high-dividend shares.

Common is a part of our ‘Excessive Dividend 50’ collection, the place we cowl the 50 highest yielding shares within the Positive Evaluation Analysis Database.

You possibly can obtain your free full record of all excessive dividend shares with 5%+ yields (together with vital monetary metrics resembling dividend yield and payout ratio) by clicking on the hyperlink under:

Common Company (UVV) is a Dividend King with a really excessive dividend yield. However the decline of the U.S. cigarette business poses long-term issue. General, Common is a high-risk dividend inventory.

Enterprise Overview

Common Company is a market chief in supplying leaf tobacco and different plant-based inputs to shopper product producers.

It was based in 1918 and as we speak operates in two segments: Tobacco Operations and Ingredient Operations.

The Tobacco Operations phase buys and sells tobacco used to make cigarettes, cigars, pipe tobacco, and smokeless merchandise.

Common buys tobacco from its suppliers, processes it, and sells it to giant tobacco corporations within the US and internationally.

Supply: Investor Presentation

The Ingredient Operations deal primarily with greens and fruits however is considerably smaller than the tobacco operations. Common has been rising this enterprise by means of acquisitions beginning in 2020.

Common Company reported its fourth-quarter earnings outcomes on the finish of Might. The corporate generated revenues of $770 million in the course of the quarter, which was 11% greater than the revenues that Common Company generated in the course of the earlier 12 months’s interval.

Revenues have been positively impacted by product combine adjustments, and development was weaker than in the course of the earlier quarter. Common’s gross margin was up in comparison with the earlier 12 months’s interval. This tailwind helped the corporate in rising its earnings meaningfully in comparison with the earlier 12 months’s interval.

Common’s adjusted earnings-per-share totaled $1.79 in the course of the quarter. The corporate has not offered steering for the present fiscal 12 months, however feedback point out that demand is wholesome.

Development Prospects

Common’s major enterprise has been declining as a waning business provider for years. Cigarette gross sales declined from a peak of $635.6 billion in 1981 to $270 billion in 2023.

The mixture of regulation and well being considerations about most cancers means it’s unlikely the long-term decline will reverse, despite the fact that the worldwide tobacco market grew in 2023.

Tobacco business development is being pushed by underdeveloped markets, whereas the U.S. tobacco business faces a continued decline.

Moreover, e-cigarettes and smokeless merchandise present extra competitors and are rising gross sales. In flip, they’ve accelerated the long-term decline of cigarette gross sales.

To that finish, Common’s earnings per share have been decrease in 2020 than in 2010.

The corporate is rising by means of acquisitions of fruit and vegetable suppliers. Common acquired FruitSmart and Silva in 2020 and Shank’s Extracts in 2021.

The fruit and vegetable provide companies are just like the leaf tobacco enterprise, however with higher long-term prospects.

Aggressive Benefits

As one of many main gamers in a declining business, Common has little to fret about with new entrants. The corporate’s primary opponents are Pyxus Worldwide and the cigarette producers who can instantly supply leaf tobacco.

Nonetheless, Common has a protracted historical past of established relationships with farmers and cigarette producers, that are troublesome to duplicate and lead to entry boundaries.

Moreover, Common provides worth by checking the standard, mixing, and testing the leaf tobacco earlier than promoting it to prospects. This value-added operate provides to the corporate’s aggressive benefit.

Subsequent, because the business is declining, important capital expenditures aren’t wanted. Consequently, tobacco corporations like Common usually generate sturdy free money circulate.

For instance, Common generated $186 million of free money circulate in 2023, and utilized $77 million for dividend funds.

The free money circulate may be even be used for acquisitions to broaden the Ingredient Operations phase, and to pay down debt.

Dividend Evaluation

Common has paid an rising dividend for 53 years. This makes UVV one in all solely 53 Dividend Kings.

The ahead dividend price is $3.24 per share, giving the inventory a excessive ahead dividend yield of ~6.7%. This worth is larger than the 5-year common yield.

Supply: Investor Presentation

The payout ratio is roughly 68% anticipated for 2024. The payout ratio was roughly 50% of internet earnings for the previous decade.

After finishing a strategic overview, Common raised the dividend by 36% in 2019. Since then, the corporate has principally accepted annual dividend will increase within the low single digit proportion vary.

Last Ideas

Excessive-dividend shares have instantaneous enchantment for earnings buyers. However buyers ought to fastidiously analyze every firm earlier than shopping for particular person shares, as there could also be warning indicators of potential challenges.

Common’s main problem going ahead is that its business is in secular decline. It’s making an attempt to develop within the fruit and vegetable market by buying smaller corporations, however the tobacco operations nonetheless account for almost all of revenue.

That stated, the present dividend payout is roofed by earnings and free money circulate. And, Common has elevated its dividend for over 50 years.

Consequently, UVV inventory may very well be engaging for earnings buyers.

If you’re serious about discovering high-quality dividend development shares and/or different high-yield securities and earnings securities, the next Positive Dividend assets will probably be helpful:

Excessive-Yield Particular person Safety Analysis

Different Positive Dividend Assets