Sunday, April 3, 2016

Recent Transfer: Reynolds American, Inc.

Reynolds American, Inc. (NYSE:RAI) is a holding company. Through its subsidiaries, RAI manufactures and sells cigarettes and other tobacco products in the United States. The company also provides electronic cigarettes. It distributes its products primarily through direct wholesale deliveries from a local distribution center and public warehouses. RAI was founded in 2004 and is headquartered in Winston-Salem, North Carolina.

RAI is a Dividend Contender with an 12-year streak of annual dividend increases. The company pays quarterly dividends of 42¢ per share in the months of January, April, July and October.

I'm busy consolidating several portfolios in order to manage all my dividend paying stocks using the strategies I've developed at DivGro. The process involves capturing past transactions and adding shares to my portfolio, but not actually moving stocks between accounts.

On March 8, I completed the transfer of stocks from my Scottrade portfolio and now I'm busy transferring stocks from my traditional IRA. So far, I've transferred these stocks:
I already own 85 shares of RAI. With this transfer, I'm adding another 100 shares. Here is a chart showing my buy prices:


The 3 buys I'm transferring today are connected with red dashed lines. The other buys, indicated with orange icons, represent the 85 shares of RAI already in my DivGro portfolio.

Transactions
2010-09-07Bought: 39.9449 shares of RAI at $14.41 per share:$575.61
2010-10-01Dividend on 39.9449 shares at 22.5¢ per share:$8.99
2011-01-03Dividend on 39.9449 shares at 22.5¢ per share:$8.99
2011-04-01Dividend on 39.9449 shares at 26.5¢ per share:$10.59
2011-07-01Dividend on 39.9449 shares at 26.5¢ per share:$10.59
2011-10-03Dividend on 39.9449 shares at 26.5¢ per share:$10.59
2012-01-03Dividend on 39.9449 shares at 28.0¢ per share:$11.18
2012-04-02Dividend on 39.9449 shares at 28.0¢ per share:$11.18
2012-07-02Dividend on 39.9449 shares at 29.5¢ per share:$11.78
2012-10-01Dividend on 39.9449 shares at 29.5¢ per share:$11.78
2013-01-02Dividend on 39.9449 shares at 29.5¢ per share:$11.78
2013-04-01Dividend on 39.9449 shares at 29.5¢ per share:$11.78
2013-07-01Dividend on 39.9449 shares at 31.5¢ per share:$12.58
2013-10-01Dividend on 39.9449 shares at 31.5¢ per share:$12.58
2014-01-02Dividend on 39.9449 shares at 31.5¢ per share:$12.58
2014-04-01Dividend on 39.9449 shares at 33.5¢ per share:$13.38
2014-07-01Dividend on 39.9449 shares at 33.5¢ per share:$13.38
2014-09-09Bought: 47.3566 shares of RAI at $28.65 per share:$1,357.00
2014-10-01Dividend on 39.9449 shares at 33.5¢ per share:$13.38
2015-01-02Dividend on 87.3015 shares at 33.5¢ per share:$29.25
2015-04-01Dividend on 87.3015 shares at 33.5¢ per share:$29.25
2015-07-01Dividend on 87.3015 shares at 33.5¢ per share:$29.25
2015-10-01Dividend on 87.3015 shares at 36.0¢ per share:$31.43
2016-01-04Dividend on 87.3015 shares at 36.0¢ per share:$31.43
2016-02-17Bought: 12.6985 shares of RAI at $49.01 per share:$622.35
2016-04-01Dividend on 100 shares at 42.0¢ per share:$42.00
                                                               
 Total Capital Invested $2,554.96

Total Dividends Received:$389.72

With this transfer, DivGro's projected annual dividend income (PADI) increases by $168.00 and I'm adding $389.72 in past dividends to DivGro's total dividend income.

Ratings and Fair Value Estimates for RAI


Following is a table containing updated ratings of RAI from various sources:
 Morningstar Ratings (**---) Credit Rating: BBB 
 Dividend.com's DARS Rating  3.4/5 (Neutral)
 TheStreet Ratings Rating  Buy [B+]
 The Motley Fool's CAPS Rating  (****-)
 Thomson Reuters StockReport+ (5/10) Neutral 
 S&P Capital IQ Stock Report Strong Buy (*****) Quality Ranking: B+ 
 Zacks Rank and VGM Style Score 3-Hold (VGM:D)
 Tipranks Analysts Consensus Rating  Moderate Buy
  †combined Value/Growth/Momentum score

Morningstar's fair value estimate of RAI is $45.00, whereas S&P Capital IQ calculates a fair value of $48.20. According to Tipranks, based on 2 ranked analysts offering 12-month price targets for RAI, the average price target is $55.50. Finally, finbox.io has a fair value estimate of $44.10.

Included here is an embedded tool allowing you to adjust several parameters in the dividend discount model and see the effect on fair value, courtesy of finbox.io.


The average of these valuations is $48.20, which means that RAI is trading just above fair value.

Why RAI?


As mentioned, RAI is a Dividend Contender with a steak of 12 years of dividend increases. Here are some additional reasons why I like RAI:
  1. RAI offers a solid dividend yield of 3.3% and has been a solid performer for me since my first buy. 
  2. The company maintains a strong brand portfolio, which it enhances with continuous innovations.
  3. RAI adapts to evolving demands and has developed non combustible, less harmful tobacco products. 
  4. Fourth quarter earnings improved 19.1% year over year backed by higher pricing. Net sales rose 43.1% year over year driven by strong performance in both smokable and smokeless categories.
  5. The addition of the Newport brand following RAI's merger with Lorillard is boosting sales and is increasing growth opportunities for RAI. The company's market share in the U.S. is about 35%.
Would you buy shares of RAI at the current stock price? Do you avoid so-called sin stocks? Please share your ideas about RAI in the comments section below.

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