Universal Corp (NYSE:UVV)

12/16

DIVID

a dividend winner!

An inexpensive quality business that is very consistenly profitable in an industry that'll stick around. That's pretty much all there is to a long equity investment.

Good Finances,P/B &P/E is low, and with a Return on Equity of about 15%, this looks like the perfect buffet/graham stock!

real life purchase today @ $37.96

Testing a screen: PE < 10, yield > 3%, 5 stars on caps

5 STAR, Small-cap, dividend payer

http://www.fivecentnickel.com/2011/01/10/investing-in-the-dividend-champions/

Solid dividends in a tobacco stock that has no tobacco litigation risk -- because it sells leaf to manufacturers and does not sell to the consumer market. The company is internationally diversified and provides a broad base of services to tobacco farmers.

The company looks pretty efficient despite being off track of earnings this year. However, two more quarters still remain to be seen. Very nice P/E and Dividend, despite other factors being lower than the sector. Found this one by screening for stocks with Debt-to-Equity under .50, a dividend yield above .75, beta to 1.50 and being a small-cap stock.

Soon after I made this call, UVV's stock price tumbled over 10%. Shortly there after, PMI Brazil made a deal to source directly from 17,000 farmers in Brazil, which included taking on 20% of UVV's contracts with the farmers. Alliance One International, is also selling inventory management software and other assets to PMI as part of this deal in addition to some of their contracts. While this business has been highly profitable in the past and will continue to be as long as it remains in tact, I think the business model is under pressure. It is clear that UVV's large customers have impressive clout, demonstrated by their ability to bypass UVV's sourcing services and source with farmers directly. This puts into question the value that UVV provides as a middleman between farmers and tobacco companies. A second risk I see is that 10% or more of UVV's revenues come from three customers (Phillip Morris International, Japan Tobacco, and Imperial Tobacco Group) as of FYE 3/31/10. I do not know the total exposure, but actions by any of those 3 customers to compete with UVV could have a significant effect on UVV's revenue and profits.

UVV's management believes that UVV provides a valuable service to its customers and in the long-term, they will continue to rely on UVV's value-added services rather than choose to compete with UVV. I think this is the million dollar question. If UVV continues to do business as usual with its customers, I think UVV is inexpensively priced today (i.e. 7 PE, 4.7% div yield, 1.1 P/B, etc.). If UVV's customers decide to become competitors (and follow suite with PMI Brazil), UVV may not be "cheap" after all. As growth slows in some of the tobacco markets, UVV's tobacco sourcing business may seem like a logical step for tobacco companies to try to compete in as other growth options disappear. I think UVV's current valuation ($39.68/share) prices in some of that risk... but time will tell for sure.

Unreasonable sell off after late may analyst downgrade. Strong yield and low P/E and P/B, tobacco is evil but profitable...

I think the stock will rebound in the next few weeks but then will underperform the market.

UVV is one of those long running boring stocks. It has increased dividends for 40 years and is moving to it's 52 week high. It is low priced based on earnings and book value (10 & 1.4), although a little high FCF of 25. Fiscal 2010 earnings est. for 2010 are almost pegged to double since 2007. Yes, revenues are flat for 2010 after about a 19% increase, but the share price will benefit from the share buyback plan of 150M. And total return (assuming dividends reinvested) is (from Schwab):

1 Year +93.7%
3 Year +13.8%
5 Year +29.7%

Not bad for a boring stock. I bought back in 7/09 at 38.93, so I have a pretty good gain so far at a div. yield of 4.8%. My total return is 41% and I'm sticking with it for a new 52 wk high, IMHO.

Just my thinking about why I think it rates more than 3 stars.

Go tobacco go!

This met a high level screen to indicate a buy and strong outperform against its peers (other tickers in its industry). My 1st version of this spreadsheet devles deep into the company's balnace sheet and recent income statements, combined with other relevant price data for the company including insider/institutional holdings, short interest, debt levels, etc.
Testing capabilities of this 1st version of my automated, valuation spreadhseet matched with my personal criteria and see how it holds up.

Discover Price: $34.87
Duration: Short-term pick
Less than two weeks

Reasoning:
Consumer/Non-Cyclical
Relative out-performance.
Intermediate-term Uptrend
Recent short-term Uptrend

Disclosure: No position

Low leverage and great fundamentals -- both when comparing the share price with the income statement and balance sheet. Also, the company generates plenty of cash from operations to sustain the nice dividend.

The FDA can go ahead and regulate tobacco. A) Many people will choose to smoke regardless of any warning labels and B) much of the company's income comes from outside the U.S.