Lorillard’s introduced a non-menthol Newport product during the quarter, in an effort to extend its best-selling Newport menthol cigarettes and also saw solid retail sales growth in its low-priced Maverick brand. But the lukewarm results are a function of lower wholesale sales even though retail sales improved. The company also got hit with higher costs related to litigation settlement agreements and federal requirements.

The company posted EPS of $1.94 on revenue of $1.62 billion. The consensus estimate called for EPS of $2.03 on $1.14 billion. Gross profit fell year-over-year from 36.1% to 34.7%. To make up for the profit shortfall, the company announced a new $750 million share buyback following a $1.4 billion buyback that was completed in August. The company has about $550 million remaining in the new share repurchase program.

In the first 45 minutes of trading this morning, Lorillard’s shares are down about -4.9%, and while volume is heavier than usual, it is not dazzlingly so. The company’s average daily volume is just less than 2 million shares out of more than 138 million shares outstanding. Almost 97% of the shares are held by institutional investors, who are quite happy with the stock’s yield and less interested in a rising share price. By way of comparison, institutional investors hold about 71% of Philip Morris shares, about 61% of Altria shares, about 46% of Reynolds’ shares, and just under 28% of VGR’s shares.

Given the relatively low turnover in Lorillard’s shares today, one might reasonably conclude that the institutional investors are still satisfied with the dividend and with the company’s new share repurchase program. For institutional investors, tobacco companies’ high dividends are worth holding on for.

With the exception of Philip Morris, the other tobacco company stocks are trading lower today as well, though volumes are not out of the ordinary. Philip Morris shares are up a bit — 0.10% — likely due to a strong report from India’s ITC Ltd., the largest cigarette maker in that country.

Lorillard’s shares are off -4.9%, at $109.98, in a 52-week range of $72.40-$120.00. Altria’s shares are off -0.55%, at $27.30, in a 52-week range of $23.20-$28.14. Reynolds American shares are off -1.66%, at $39.07, in a 52-week range of $19.50-$39.77. VGR shares are off -0.74%, at $17.39, in a 52-week range of $15.37-$19.28.

Paul Ausick

The new annualized dividend rate is $1.64 per common share and the $26.01 share price and that generates a new dividend yield of 6.3%.  That is even above our mid-point of the latest Great Dividend Portfolio for Uncertain Times recently published.

Altria targets roughly an 80% payout ratio of its income for dividends.  It is not exactly like it is looking for huge acquisitions ahead.

The best statistic is this… Altria has increased its dividend 45 times in the last 42 years.

Reynolds American Inc. (NYSE: RAI) is probably another two quarters out before another dividend hike is announced, and its current yield is about 5.85%.  Vector Group Ltd. (NYSE: VGR) could have a hike at any time, but the $0.40 per quarter payout with an $18.27 price generates a current dividend of 8.7%.

It is amazing to be in a business that kills the customers and earnings can keep rising and rising.

JON C. OGG

Kraft may be winning today in defensive stocks, but that is because of its break-up.  It is some of the other stocks in our go-to defensive list that are holding up very well today.  These all have dividends and will have business whether Europe and other worries torpedo the stock market or not.  And on a day like today, we are looking for companies that are only down less than half the broader market. These winners or “less of losers” are in the following: Pepsico, Inc. (NYSE: PEP); ConAgra Foods, Inc. (NYSE: CAG); Campbell Soup Company (NYSE: CPB); McDonald’s Corporation (NYSE: MCD); Altria Group, Inc. (NYSE: MO); Vector Group Ltd. (NYSE: VGR); Procter & Gamble Company (NYSE: PG); Colgate-Palmolive Company (NYSE: CL); Kimberly-Clark Corporation (NYSE: KMB); Johnson & Johnson (NYSE: JNJ); and American Water Works Company, Inc. (NYSE: AWK).

If you can eat it and drink it…

Pepsico, Inc. (NYSE: PEP) $64.49, actually up $0.01 probably because it has a snack-food business like Kraft that could be spun off if it wanted to.  Do not hold your breath for Pepsi to bust up its empire.  The 3.3% yield helps too. Percent from 52-week high: 10.7%.

ConAgra Foods, Inc. (NYSE: CAG) is down only 1.4% at $24.73 and it has a 3.7% yield.  It could have some break-up too but Kraft was different than ConAgra.  Percent from 52-week high: 7.5%.

Campbell Soup Company (NYSE: CPB) is down 1.2% at $32.54 with its 3.6% dividend yield but the company already outlined some of its challenges ahead.  Percent from 52-week high: 14.0%.

McDonald’s Corporation (NYSE: MCD) is a winner even when it loses as “the you gotta eat somewhere” move steers folks to Micky D’s.  After having recently hit new all-time highs, it is down only 0.25% at $85.32.  Its dividend is just under 3% now. Percent from 52-week high: -5.1%.

Can I bum a smoke?…

Altria Group, Inc. (NYSE: MO) is down 0.6% at $26.18.  Do you need an explanation beyond the 5.9% dividend yield? Percent from 52-week high: -7.7%.

Vector Group Ltd. (NYSE: VGR) is down only 0.2% at $17.49 and it has closer to a 9% dividend yield.  If Obama and Boehner both smoke, they probably had many more smokes in the last month than normal. Percent from 52-week high: -16.3%… that is down enough you might wonder how ‘defensive’ it is.

Shaving, deodorant, diapers and more….

Procter & Gamble Company (NYSE: PG) is down only 0.4% at $60.49 with its 3.4% dividend. Percent from 52-week high: -11.0%.

Colgate-Palmolive Company (NYSE: CL) is down 0.5% at $83.91 with a 2.7% yield.  Percent from 52-week high: 6.5%.

Kimberly-Clark Corporation (NYSE: KMB) is down a bit more at -1% at $63.89, but it offers the best yield in consumer products at 4.3%. Percent from 52-week high: 7.1%.

Johnson & Johnson (NYSE: JNJ) is the real medical or drug winner on a day where drug stocks are not holding up, but it also has consumer products.  J&J is down ‘only’ 0.9% at $62.83 with a 3.6% yield.  Percent from 52-week high: 8.0%.

H2O, You Know You Need Water…

American Water Works Company, Inc. (NYSE: AWK) had earnings that went well to the higher part of guidance but profit taking has come here too.  Shares are down 1.2% at $27.95 and that takes it back within striking distance of the 10% correction from the high.  It almost never gives a 10% pullback opportunity for buyers. The 3.3% dividend can’t be too bad either. Percent from 52-week high: 9.0%.

*****

The DJIA is down 2.7% or 324 points to 11,571.53 today.  When you see stocks down half that amount or almost up on the day, it doesn’t take a rocket scientist to figure out that money is not fleeing these names.

JON C. OGG

The images are far more graphic than the image that I took of an advertisement in the Frankfurt Airport in Europe.

We have included each of these images below and they are not exactly ‘pretty’ by any standard.  It is not too shocking, but the tobacco companies are seeing their shares priced lower today.

News just came from Philip Morris USA yesterday that a federal judge in Florida had dismissed a medical monitoring class action case because plaintiffs failed to allege a legally proper claim for medical monitoring.

At what point do courts just stop accepting tobacco cases?  It is not like you can still smoke and think it is not a killer.

Courts can say “You should have known better” or more importantly they can say “Look, we tax the hell out of tobacco and we need the tax revenues.”

Still, these warning labels are ugly enough that you have to winder if it will impact the domestic sales or not.

Shares of each are down while the broad market is up.

Most tobacco stocks have performed well, and they usually offer great dividends for investors.

Altria Group Inc. (NYSE: MO) is down by 0.4% at $27.22 right before the closing bell and its 52-week trading range is $19.53 to $28.13; the dividend yield is listed as 5.6%. Its 2010 sales were $24.363 billion.

Reynolds American Inc. (NYSE: RAI) is down by 0.3% at $38.12 right before the closing bell and its 52-week trading range is $25.62 to $39.87; the dividend yield is listed as 5.6%. Its 2010 sales were $8.932 billion.

Lorillard, Inc. (NYSE: LO) is actually up by 0.4% at $111.61 right before the closing bell and its 52-week trading range is $70.87 to $116.90; the dividend yield is listed as 4.7%. Its 2010 sales were $5.932 billion.

Vector Group Ltd. (NYSE: VGR) is down by 0.55% at $18.20 right before the closing bell and its 52-week trading range is $15.37 to $20.80; the dividend yield is listed as 8.8%.  Its 2010 sales were $1.063 billion.

There is one other consideration, and that is the world of “Good intentions gone awry.”  Pfizer Inc. (NYSE: PFE) makes a smoking cessation drug called Chantix.  This drug has been tied to radical psychotic episodes and now there are fresh warnings about cardiovascular risks which are out.  What do you do when the drug side effects are worse than the cause?

JON C. OGG

Here’s a quick chart of trailing twelve-month annual dividend yield and forward annual dividend yield as of Friday’s close, together with the stocks’ 52-week ranges and median share price target.

In a sign that some analysts are losing confidence in the tobacco sellers, Citigroup has downgraded British American and Philip Morris from ‘Buy’ to ‘Hold’. Citi expects smoking to essentially disappear in the next 30 to 50 years. The analyst doesn’t offer a reason for the disappearance, but the logical conclusion is that all smokers will be dead by then.

Even if that’s true, the short-term focus is more important to investors than the outlook for 20 years from now, and the forward yields for the tobacco companies are higher for every company except Reynolds American. That suggests that overall expectations for the tobacco business are still strong.

The reason for the continuing growth projections have to do with the very nature of tobacco itself. In “Barbarians at the Gate,” the story about the takeover of RJR Nabisco back in the late 1980s, one of the tobacco company executives is quoted as saying something like this:

“Cigarettes are the perfect product. You can make them for a penny and sell them for a dollar; people are seriously brand loyal; and the product is addictive.”

The risks of owning a tobacco stock are not insignificant. More litigation, higher excise taxes, more government regulation, and dying customers don’t offer a welcoming environment.

But the tobacco firms’ pricing power is outrageous, especially Altria’s and its Marlboro brand. Marlboro’s US market share is over 40% and the brand sells at a premium of more than 30% to lower cost cigarettes.

Altria’s forward dividend yield is higher than any other, except Vector Group’s. Vector introduced and still makes many discount cigarette brands. The company is smaller than the others we’ve looked at here, but its expected dividend yield is hard to ignore.

Investors untroubled by sin can’t do much better than either Altria or Vector Group. Or is that, can’t do much worse.

Paul Ausick

With the DJIA down 1.8%, we wanted to see which stocks of our investable defensive stock universe were either up or were down less than the broad market.  Coca-Cola Co. (NYSE: KO) was the only stock higher on the day and that was after earnings and on its share buyback acceleration. Coke was also only one of two DJIA components up on the day in late-day trading. Other defensive stocks that were trying to hold their own by being down less than the overall market are Johnson & Johnson (NYSE: JNJ), Kraft Foods Inc. (NYSE: KFT), ConAgra Foods, Inc. (NYSE: CAG), Campbell Soup Company (NYSE: CPB), Hormel Foods Corporation (NYSE: HRL), McDonald’s Corporation (NYSE: MCD), American Water Works Company, Inc. (NYSE: AWK), Altria Group, Inc. (NYSE: MO), Vector Group Ltd. (NYSE: VGR), Reynolds American Inc. (NYSE: RAI), Procter & Gamble (NYSE: PG), and Palmolive Company (NYSE: CL).   Of our traditional 20 go-to defensive stocks, that makes 13 that are doing better than the market on a relative basis.

Johnson & Johnson (NYSE: JNJ) was also down less than the market, but that was after its earnings report this morning.  Shares were down 1.1% at $63.15 and its 52-week range is $56.86 to $66.20.  J&J posted a 2% gain in profits, but sales are under pressure in some areas.  Joint replacement is weak and recalls in its consumer products continue.  This was recently one of three picks as a defensive stock for a down market.

Food was the larger safety net today: Kraft Foods Inc. (NYSE: KFT) is down 0.7% at $31.44; ConAgra Foods, Inc. (NYSE: CAG) is down ‘only’ 0.27% at $22.54; Campbell Soup Company (NYSE: CPB) is down just over 1% at $36.02; Hormel Foods Corporation (NYSE: HRL) is down 0.75% at $44.53; and McDonald’s Corporation (NYSE: MCD) is down 0.5% at $76.95 after recent all-time highs.

Water, the source of life… American Water Works Company, Inc. (NYSE: AWK) is also proving that water is the place to be as the water utility has been the place to be.  This was recently our top of the list of go-to defensive picks for water investors as well.  With a steady business plan and a rising dividend, it is nor surprise that American Water Works is only down 0.21% at $23.60 on the day.

Tobacco is looking like they are smoking it up.  Altria Group, Inc. (NYSE: MO) has pulled back from its recent highs of $25.00, but shares are still down ‘only’ 0.8% at $24.70.  Vector Group Ltd. (NYSE: VGR) is down 0.85% at $18.43 and Reynolds American Inc. (NYSE: RAI) is down the least of the three with a drop of 0.7% at $61.87.  This is what happens when you are too stressed to quit smoking.  Surprisingly, beer companies were worse off.

Consumer products are living up to their defensive posture as well.  Procter & Gamble (NYSE: PG) is down 0.3% at $63.17 while Colgate-Palmolive Company (NYSE: CL) is down by 0.8% at $76.10.  Deodorant, tooth and hygiene products are needed in all markets.

So, if you can eat it, drink it, smoke it, or if you have to apply it to your body, those are the stocks outperforming (performing less badly) the broad market.  Defensive stocks are doing their job today.

You can join our free daily email distribution list to hear more about dividend trends, analyst upgrades and downgrades, top day trader and active trader alerts, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

When you look at Thomson Reuters estimates of $3.78 EPS in 2010 and $4.18 EPS in 2011, Philip Morris International is paying out far less than Altria.  Altria’s yield is closer to 6.5% after it has made recent hikes as well.  That comes to a range of 61% to 67% of its earnings per share being allocated to dividend payments.

The new dividend of Altria is $1.52 per share on an annualized basis, and compared to Thomson Reuters consensus estimates of $1.89 EPS for 2010 and $2.01 EPS for 2011 at the time it was a range of 75% to 80% of earnings per share being paid out as dividends.

The reason for a lower payout from International is rather simple if you consider it.  Philip Morris is the international play and it has what many consider more growth opportunities.  It probably also needs to continue to build up its balance sheet if any of those tobacco-loving countries it serves decides one day that those cigarettes unjustly acted as killers of their citizens and follows the U.S. down the lawsuit path.  There is also the currency issue, which can make “International’s” earnings extremely volatile.

This actually marks the third dividend hike since International has been its own company.  The rate was $0.46/quarter in 2008 before jumping to $0.54 and then ultimately to $0.58.

Lorillard, Inc. (NYSE: LO) approved a 12.5% increase in its quarterly common stock dividend to $1.125 per share in late-August.  With its $4.50 annualized payout and with Thomson Reuters estimates of $6.54 EPS in 2010 and $7.13 EPS in 2011, Lorillard is expected to pay out roughly 63% to 69% of its earnings for dividends.  Its current yield based upon a $81.50 price is roughly 5.50%.

Reynolds American Inc. (NYSE: RAI) has a $0.90 dividend (which we expect will rise) per quarter for a $3.60 annualized payout.  The current dividend yield based upon its $57.00 price, the yield is roughly 6.30%.  The company had raised expectations and the Thomson Reuters estimates of $4.98 EPS in 2010 and $5.26 EPS estimates in 2011 shows that its current $3.60 annualized payout would be roughly 68% to 72% of its income paid out in dividends.

It was just a week earlier that Vector Group Ltd. (NYSE: VGR) declared a regular $0.40 quarterly cash dividend and declared its regular annual stock dividend of 5%. Without the stock component of the dividend, Vector has a dividend yield of about 7.8%.  It is “the other Vector operations” that act as a wild card: Vector Group is also involved in the real estate business through its New Valley subsidiary, which holds a 50% ownership interest in Douglas Elliman Realty LLC (a large residential real estate brokerage firm in the New York metro-area). New Valley also holds investments in several real estate projects in California and New York.

Smoking kills.  It also pays high dividends.

JON C. OGG

Vector Group was the ONLY stock on the defensive sector list that was not lower on the trading day.  We ran a table below to show how the drop is there even in defensive stocks today.  When you consider that many of these names are within a few percentage points of their 52-week highs, it makes sense that these are lower.  If the market is going to fall more, why not lock in profits in and wait to buy at a lower price after the drop.

JON C. OGG

Where do we hide when the tide turns?

There are three things investors traditionally want after making huge gains when they still want to hold stocks.  They want stocks that have dividends and may want ‘value stocks.’  But the largest safety net of where to hide almost boils down to defensive stocks.  Our go-to universe is certainly not a complete list as it is the top sixteen we look at: PepsiCo, Inc. (NYSE: PEP) and The Coca-Cola Company (NYSE: KO) for beverages, and Anheuser-Busch Inbev SA (NYSE: BUD) followed by a distant second Molson Coors Brewing Company (NYSE: TAP) for beer.  You have to eat, so we look at Kraft Foods Inc. (NYSE: KFT), ConAgra Foods, Inc. (NYSE: CAG), Campbell Soup Co. (NYSE: CPB), and Hormel Foods Corporation (NYSE: HRL).  For the big-spenders and going out to eat, the only true defensive stock is McDonald’s Corporation (NYSE: MCD).  And those smokers just won’t give it up, so we look at Altria Group, Inc. (NYSE: MO), Vector Group Ltd. (NYSE: VGR), and Reynolds American Inc. (NYSE: RAI).  Then, despite the huge SNAFU yesterday, there is Procter & Gamble Company (NYSE: PG) and a distant second Colgate-Palmolive Company (NYSE: CL).  In drugs and then diversified medical and consumer there is Merck & Company, Inc. (NYSE: MRK) and Johnson & Johnson (NYSE: JNJ).

We have broken each out by a snapshot at 11:21 this morning, then added in a price, 52-week range, change on the day, a forward P/E ratio based upon Thomson Reuters estimates, and a dividend yield.

JON C. OGG

PEPSICO INC (NYSE: PEP) $56.1805.. Down $0.4895; -0.86%
COCA COLA CO (NYSE: KO) $48.58.. Down $0.19; -0.39%
MOLSON COORS CO. (NYSE: TAP) $47.01.. Down $0.37; -0.78%
KRAFT FOODS INC. (NYSE: KFT) $28.08..  Down $0.27; -0.95%
CONAGRA FOOD INC. (NYSE: CAG) $20.13.. Down $0.40; -1.95%
CAMPBELL SOUP CO. (NYSE: CPB) $30.86.. Down $0.50; -1.59%
HORMEL FOODS CORP. (NYSE: HRL) $37.00..    Up 0.05; +0.14%
MCDONALDS CORP. (NYSE: MCD) $55.72.. Down $0.51; -0.92%
ALTRIA GROUP INC. (NYSE: MO) $18.13.. Down $0.16; -0.83%
VECTOR GROUP LTD. (NYSE: VGR) $15.71.. Down $0.07; -0.44%
REYNOLDS AMERICAN (NYSE: RAI) $45.17.. Down $0.54; -1.18%
PROCTER GAMBLE CO. (NYSE: PG) $53.05.. Down $1.06; -1.96%
COLGATE PALMOLIVE (NYSE: CL) $71.82.. Down $0.89; -1.21%
MERCK CO INC. (NYSE: MRK) $31.79.. Down $0.64; -1.97%
JOHNSON & JOHNSON (NYSE: JNJ) $59.88.. Down $0.56; -0.92%
NOVO NORDISK (NYSE: NVO) $60.024.. Down $0.986; -1.62%

Oddly enough, Wal-Mart is the ONLY one of the DJIA 30 components trading higher this afternoon.

JON C. OGG
SEPTEMBER 1, 2009