Dividend Growth Stock Overview: Universal Corporation

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About Universal Corporation

Universal Corporation is the largest supplier of tobacco leaf in the world. The company was founded in 1918 and changed its name from Universal Leaf Tobacco Company at the end of 1987. Universal Corporation is structured as a holding company, with Universal Leaf Tobacco Company as its primary subsidiary. The company does not manufacture or sell consumer tobacco products like cigarettes or cigars; rather, it provides the tobacco to manufacturers that produce them.   According to its annual report, Universal processes 35 – 45% of Africa’s annual tobacco production, 15 – 25% of Brazil’s tobacco production, and 25 – 35% of the United States’ tobacco production. The company is headquartered in Richmond, VA and employs more than 28,000 permanent and seasonal workers.

In addition to supplying tobacco, Universal provides blending and testing services to the tobacco industry. Universal has also started some small ventures in other business opportunities. In August 2013, Universal entered into AmeriNic, a joint venture with Avoca to produce liquid nicotine for the vapor products industry. In April 2014, Universal created a subsidiary (Carolina Innovative Food Ingredients, Inc.) to produce food-grade dehydrated and juiced fruit and vegetable products.

Universal divides its business into 3 reportable segments: North America, Other Regions, and Other Tobacco Operations. The North America and Other Regions segments provided 19% and 75% of fiscal year 2015 revenues, respectively. These segments supply tobacco for cigarette production. The Other Tobacco Operations segment, which includes tobacco sourcing for other consumer tobacco products (like cigars and pipes), provided the remaining 6% of company income in FY 2015.

The company posted $2.3 billion in revenues in fiscal year 2015 (which ended March 31, 2015), which was down 11% from the prior year. The drop in revenues was due to reduced sales volumes across all segments. Earnings per share were down 25% to $4.33; fiscal year 2014 income included $1.87 per share from the conclusion of litigation in Brazil. Company book value increased 1.5% to $50.95 in FY 2015. With Universal’s current dividend of $2.08, the company’s payout ratio is 48.0%

Universal has a share repurchase program which expires in November 2015. Of the original $100 million authorization, $67.3 million remained available as of March 31, 2015, which represents 5.5% of the company’s available common stock.

The company is a member of the S&P Mid Cap 400 and Russell 2000 indices and trades under the ticker symbol UVV.

Universal Corporation’s Dividend and Stock Split History

Universal Corporation Dividend Growth

Universal Corporation has grown dividends at a compounded rate of 2.2% over the last decade.

Universal Corporation began increasing dividends in 1972. The company announces dividend increases in November, with the stock going ex-dividend in January. In November 2014, Universal Corporation announced a 2.0% increase to an annualized rate of $2.08. I expect Universal Corporation to announce its 45th year of dividend increases in November 2015.

Over the last decade, Universal Corporation has grown quarterly dividends by only a penny a share, resulting in 5-year and 10-year compounded growth rates of 2.0% and 2.2%, respectively. Longer term, dividend growth hasn’t been much faster, with 20-year and 25-year compounded growth rates of 3.7% and 4.4%.

Universal Corporation has split its stock only once in the last quarter century, a 2-for-1 split in January 1992.

Universal Corporation’s Direct Purchase and Dividend Reinvestment Plans

Universal Corporation has both direct purchase and dividend reinvestment plans. You must already be an investor in Universal Corporation to participate in the plans; if you own the stock in your brokerage account, you’ll have to have them transferred into your name in order to join the plans. The minimum investment for additional direct purchases is $10, and the dividend reinvestment plan allows for full or partial reinvestment of dividends.

The plans’ fee structures are extremely favorable to investors – the company picks up all fees for share purchases and sales. You will only pay a fee if you choose to use a market, limit or stop-loss order (as opposed to a batch order) when selling your shares. In this case, the fee will be either $25 (for market orders) or $30 (for limit or stop-loss orders). You will also pay a fee of $5 to have the funds from the sales directly deposited into your account. All fees will be deducted from the sales proceeds.

Helpful Links

Universal Corporation’s Investor Relations Website

Current quote and financial summary for Universal Corporation (finviz.com)

Information on the direct purchase and dividend reinvestment plans for Universal Corporation

 

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