Tuesday, August 30, 2011

Universal Corp (UVV)

Universal Corp (UVV) is the world’s largest leaf tobacco importer/exporter. The company purchases, processes and sells flue-cured and burly tobacco to cigarette, pipe tobacco and cigar manufacturers. Profits and dividends have grown 4-6% over the past 10 years while earning an 8-12% return on equity. Profits and dividends should resume growth as a result of:

(1) increased operating efficiencies,

(2) its continuing aggressive stock buyback program.


(1) several major cigarette companies are developing direct tobacco leaf sourcing,

(2) global leaf production is expected to reach over supply,

(3) continuing health concerns.

UVV is rated B++ by Value Line, has 26% debt to equity ratio and its stock yields 4.6% and has raised its dividend every year for the last 19 years. In a recent review of UVV, it failed to meet our minimum quantitative standards to qualify for inclusion in our Universe. However, with the recent down turn in the Market, I am delaying moving out of this position until equity prices recover. In the meantime, UVV’s yield should act to limit the downside risk in this stock.

Statistical Summary

Stock Dividend Payout # Increases
Yield Growth Rate Ratio Since 2001

UVV 4.6% 4% 44% 10
Ind Ave 4.5 13 65 NA

Debt/ EPS Down Net Value Line
Equity ROE Since 2001 Margin Rating

UVV 26% 8% 5 5 B++
Ind 66 4 NA 15 NA


Note: UVV stock made a quick recovery off its March 2009 low, quickly surpassing the down trend off its March 2008 high (red line) and the November 2008 trading high (green line). UVV is in a long term up trend (straight blue line is the lower boundary). In early 2010, it broke its intermediate term up trend but has since settle into a trading range marked by the November 2008 trading high (green line lower boundary) and the upper boundary defined by the purple line. The wiggly blue line is on balance volume. The High Yield Portfolio owns a 50% in UVV. In a recent fundamental review, UVV failed to meet the minimum criteria to qualify for our Universe. The High Yield Portfolio didn’t Sell immediately because stocks were in the middle on the recent whackage. However, as stock prices in general move up, this position will be eliminated.