Today I take a look at tobacco company Vector Group LTD (VGR). I’d never heard of Vector before running a high dividend stock screen recently. They are a 9% high dividend stock, but is their dividend safe? No. How is the stock priced relative to earning power? Speculatively priced. What about their balance sheet? It is awful. Read on to see how bad the numbers are for this company. There is a reason the company’s stock price has only increased 0.32% in 10 years while price inflation has eroded over 30% of the dollars purchasing power in the same time.
Vector Group LTD (VGR)
Price: $17.72 (last week)
Shares: 79.57 million
Market capitalization: $1.41 billion
Preferred stock: None.
Bonds: $1.7 billion outstanding. Nothing is due soon, but Vector has other debt troubles (see balance sheet below).
What does the company do? Vector Group manufactures cigarettes through subsidiaries. Its Liggett Group subsidiary produces cigarettes under discount brands and private labels. The company also produces cigarettes in Russia. Recently, Vector Group has launched QUEST, which it claims is a genetically engineered nicotine-free cigarette.
DIVIDEND RECORD: Vector Group is a steady dividend payer and grower, but the money company is paying out more than it earns.
Dividend: $0.40
Dividend yield: 9% ($1.20 annual dividend / $17.72 share price)
Dividend payout: 129% ($1.20 / $0.93 recent EPS) –OR- 164% ($1.20 / $0.73 average adjusted earning power)
EARNING POWER: $0.73 per share @ 79.57 million shares
(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)
EPS | Net income | Shares | Adjusted EPS | |
12/2007 | $0.93 | $74 M | 74 M | $0.93 |
12/2008 | $0.69 | $61 M | 82 M | $0.77 |
12/2009 | $0.31 | $25 M | 77 M | $0.31 |
12/2010 | $0.68 | $54 M | 78 M | $0.68 |
12/2011 | $0.93 | $75 M | 79 M | $0.94 |
Five year average adjusted earnings per share is $0.73
Consider contrarian buying below $5.84 (8 times average adjusted EPS)
Consider value buying below $8.76 (12 times average adjusted EPS)
Consider speculative selling above $14.60 (20 times average adjusted EPS)
Vector Group LTD (VGR) is currently trading at 24 times average adjusted EPS. This is stock is speculatively priced.
BALANCE SHEET – Hideous!! Negative equity!
Most of the damage to the balance sheet has been due to an increase of short-term debts and other long-term liabilities.
Fiscal year ends in December. $USD in millions except per share data. | 2007-12 | 2008-12 | 2009-12 | 2010-12 | 2011-12 |
Current liabilities | |||||
Short-term debt | 21 | 97 | 22 | 52 | 135 |
Accounts payable | 7 | 6 | 4 | 9 | 10 |
Deferred income taxes | 24 | 93 | 17 | 37 | 36 |
Taxes payable | 12 | 44 | 30 | 25 | |
Accrued liabilities | 34 | 69 | 46 | 40 | 42 |
Other current liabilities | 24 | 19 | 15 | 59 | 68 |
Total current liabilities | 109 | 296 | 149 | 227 | 315 |
Non-current liabilities | |||||
Long-term debt | 277 | ||||
Deferred taxes liabilities | 142 | 49 | 45 | 52 | 61 |
Accrued liabilities | 2 | ||||
Pensions and other benefits | 35 | 34 | 39 | 46 | |
Other long-term liabilities | 156 | 304 | 512 | 678 | 593 |
Total non-current liabilities | 575 | 388 | 591 | 769 | 702 |
Total liabilities | 684 | 684 | 740 | 996 | 1017 |
Book value per share: ($1.12) Vector Group has a negative book value per share. This means stay away at any price. There are much better stocks to buy.
Price to book value ratio: Not applicable because of the negative book value (under 1.0 is good)
Current ratio: 1.61 latest quarter (over 2.0 is good)
Quick ratio: 1.00 latest quarter (over 1.0 is good)
Debt to equity ratio: Not applicable because they have no equity. (lower is better)
Percentage of total assets in plant, property, and equipment: 6.1% (the higher the better) Other assets include: Current assets 54.94%, Intangibles 11.59%, and Long Term Assets 27.32%
CONCLUSION – Vector Group LTD is a 9% high dividend stock, but I don’t trust their ability to payout the dividend in the future. They are going to have to issue more shares or debt to finance the dividend. The stock is speculatively priced at 24 time average adjusted earning power. The balance sheet is horrifying. They have negative equity and no plan to fix the situation. I wouldn’t buy this stock until its balance sheet is repaired. Stay away from Vector Group LTD. It is headed for a cliff when the worldwide recession reappears. This appears to be a poorly run company.
DISCLOSURE – I don’t own Vector Group LTD (VGR)
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