Vector Group: Dividend Dynamo or the Next Blowup?http://www.fool.com/investing/general/2012/03/05/vector-group-dividend-dynamo-or-the-next-blowup.aspx Ilan Moscovitz
March 5, 2012
Dividend investing is a tried-and-true strategy for generating strong, steady returns in economies both good and bad. But as corporate America's slew of dividend cuts and suspensions over the past few years has demonstrated, it's not enough simply to buy a high yield. You also need to make sure those payouts are sustainable.
Vector yields a whopping 8.9%, considerably higher than the S&P 500's 2%. That's also much higher than the other major tobacco producers. Of Altria (NYSE: MO ) , Philip Morris International (NYSE: PM ) , and Reynolds (NYSE: RAI ) , Altria comes the closest to Vector's dividend, still clocking in well below at a 5.5% yield.
2. Payout ratio
Vector has a massive payout ratio of 167%. Tobacco isn't a particularly capital-intensive industry, so it's normal for companies to have high payout ratios. That said, it's still unusual to have a payout ratio above 100%. Altria, Philip Morris, and Reynolds all generate enough earnings to cover their payouts.
3. Balance sheet
Let's examine how Vector stacks up next to its peers: