Lorillard Shares Jumped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of cigarette maker Lorillard (NYSE: LO  ) were smoking hot today, gaining as much as 13% in intraday trading after the company reported fourth-quarter results.

So what: Smashing the stereotype of high-yielding dividend stocks as boring plodders, Lorillard gave its shares the fuel to rocket higher when it reported adjusted earnings per share of $2.20, up 26% from last year. The profit growth came as quarterly sales registered YOY growth of 8.9%, to $1.6 billion. Wall Street analysts had expected the company to earn $1.95 per share on $1.08 billion in revenue.

Oh, and as to those dividends? They weren't left out of the fourth-quarter excitement. Lorillard announced that it's boosting its quarterly payout by 19%.

Now what: Lorillard's results are rightly being cheered by investors, but there are still some significant clouds still on the horizon for the company. Through its Newport brand, the company is the leading seller of menthol cigarettes in the U.S. While that has helped the company carve out a nice market position, it's putting it in an awkward spot as regulators consider new controls on menthol smokes.

Combine that concern with the historically high valuation that shares have garnered thanks to investors' recent infatuation with dividends, and even the company's strong earnings report leaves me a bit lukewarm on the stock.

Want to keep up to date on Lorillard? Add it to your Watchlist.

Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.

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