Decision Made… Philip Morris > Lorillard

After the long thought debate and analysis on whether I should maintain my Lorillard (LO) holding or sell and rejuvenate my position into Philip Morris (PM), my decision was made.  You can remember last week, my LO stock was close to hitting the ceiling potential and the valuation on the stock just wasn’t showing that it was an appropriate valuation anymore, as well as my brief research into Reynolds American.  I wanted to know my money was going to transition into an undervalued stock, and that it was under my control to make that decision/action happen… And it was. 

The Sale

On Monday, March 16th, I sold my LO stock.  I sold my 44.1709 shares at a price point of $67.30, or $2,965.75 less the $6.95 transaction fee.  This is actually $16 more than what I expected based on my original article, which definitely had me pumped up!  This gave me a few more dollars to cover the transaction fees for two trades – the sale and the buy (~$13.90 total in fees) and then some.  LO was providing me $116 in dividend at the time and was now yielding below the 4% with over a 20+ P/E ratio and I knew that with the market churning upward in the AM, it was time to leave them behind.  I clicked the “sell” button, something us dividend investors RARELY do and feels weird doing to strong companies – as LO was strong, just they weren’t going to be LO anymore within the next 3 months (pending the close of the merger with Reynolds).  From just my personal , RAI has the Camel brand with LO holding onto the Newport, but PM has the #1 brand in Marlboro and another top ten in Parliament.  My fingertips are tentative as I think that I actually sold a stock and am going to go through capital gain taxation come next April, oh boy.

The Move – Philip Morris

I now had $2,965.75 of cash to use for the next investment.  Well, that only took a few minutes, that is that amount being held in cash.  Philip Morris stock was trading at $77.65 last week when I wrote the article.  I was able to scoop them up at $77.84 after selling my LO stock, only a $0.19 increase or 0.24% (this was after my LO stock rose 0.53%!).  Therefore, I was in a net “up” position based on the timing of the trades, given that the Philip Morris stock had not increased as much as Lorillard’s.  I purchased 38 shares and used $2,964.87 of the capital I had received (with less than a $1 to spare!).  This almost fell too perfectly, with almost a 100% usage of the funds from the sale of Lorillard.  I know Bert recently last month performed a dividend stock analysis on Philip Morris and the valuations from last week with a P/E of around 18 and a yield well over 5% and a strong history of double digit 5 year growth rate, with last year being a lower DGR of just over 6%.  Further, I have been eyeing Philip Morris stock for some time and have been egging Bert to purchase some, because of all of the valuations – yield, performance, prior stock purchase history, etc.. – it was in a prime spot and is a monster in the tobacco playing field.  Lastly, I was able to sneak in 8 days before their ex-dividend date to grab a dividend, which adds $38 in a pretty quick manner (that $1/quarter dividend X fresh new 38 shares), I was loving it!  This bumps my portfolio up to a strong amount of 80.0752 shares in total, producing $320 in dividend income now per year.

Results & Conclusion

I bought 38 more shares of Philip Morris Stock, and have created a net increase to my dividend income, after dropping $116 from Lorillard and adding $152 froM Philip Morris, of $36 or 31% more in income on the same amount of funds on a stronger stock within the same industry (maybe I am biased!).  This further pushes me towards my annual dividend income goal of $6,750 for the year and I am currently getting closer to that goal each day.  With these trades commencing – what would you have done?  Do you think Philip Morris is a better stock than Lorillard?  What about Reynolds American?  Thoughts with these actions?  Thanks for stopping by, much appreciated!

-Lanny

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19 thoughts on “Decision Made… Philip Morris > Lorillard

  1. Thanks for the post, I actually have a limit order open to purchase some PM tomorrow morning. Gotta get in before the ex-div date on the 24th. 🙂

    I was thinking about dumping my LO too but I’m not sure if I will or not. If I do I will probably move that money into another sector.

    • Captain Dividend!

      What’s going on? Thank you for coming buy and nice – I’m excited for you to scoop some of them up! The timing couldn’t be more perfect for you with one day to go.

      That’s cool that you’re debating the LO investment. I simply didn’t mind not “receiving” another 3.5-4.5% increase over 3-4 months time and thought, heck, might as well scoop up dividend income and better valuation with PM – as I was looking to buy them anyways, and might as well use tobacco money to buy a tobacco stock. You know?

      Keep us posted for your purchase tomorrow!

      -Lanny

  2. Awesome buy Lanny. You can always buy back LO when the valuation comes back down to earth a bit. LO and PM go hand in hand. PM is undervalued so that’s a bit of a value investing from your part. 🙂 Keep it up and thank you for sharing your thoughts. Take care my friend. Tyler.

    • Dividend Hustler —

      Thanks for coming by my man, I really appreciate it. Means a great deal that we are all supporting eachother!

      Not too worried with LO – valuation was high and you also saw that PM was undervalued a bit, therefore – getting more value for my money, and PM is a strong dominant company in the industry.

      Thanks DH, need all the help I can get! Talk soon.

      -Lanny

  3. Lanny,

    Nice move here. Arguably a higher-quality stock at a lower valuation and higher yield. Nice immediate boost to the dividend income. 🙂

    I’m probably just going to let LO ride out, collect my RAI shares, and use the cash for something when the time comes. With my overall exposure to tobacco being so high, I’ll probably use the cash to diversify elsewhere.

    PM appears to be one of the best deals available right now, if not the best, in my view.

    Best regards!

    • Mantra,

      Can’t believe that it fell in place as it did. Almost perfect timing with the ex dividend date and the stock had a little pop over the last few business days after the purchase was made.

      Good move with wanting to diversify elsewhere, as if you felt that you already had a “tad’ too high position in the industry – that would work out quite well for you, as $50+ per share should be a nice bang to your capital to deploy out in the field for more little soldiers.

      The valuation on PM was awesome and I’ve been wanting to pounce on more, so it worked out in a great way, to which I’m very thankful to be in the position I was in.

      Phew, the decision is over and time to move forward, excited. Thanks DM, as always.

      -Lanny

    • DD,

      Nice work! Loving that we were on the same page on that one – either we have smart minds or we are both in a for a wreck – hopefully the former, of course haha.

      But thanks for stopping by – definitely is cool we made the same decision. Here is to collecting that dividend in a few weeks!

      -Lanny

  4. That was a great timing for you! Nice to read you made your choice and are happy with it! 😉 Being comfortable with your holdings is what counts!

    • DivGuy,

      You’re the man. Thank you so much for the help and guidance – more comfortable with PM than where LO was and with RAI upcoming. And not that appreciation matters – but I’m up already over $2/share for PM? And locked in that dividend here in a week or so – $38 coming my way.

      Thanks again DivGuy! Talk soon.

      -Lanny

  5. Nice work Lanny! I’m still going to just hold onto my LO shares. I might do what Mantra said above and take the cash from the takeover and invest else where. I’ll keep the RAI shares and see how things shake out.

    Awesome work on collecting quite a bit more money for the same amount of capital!

    • ADD,

      Thank you for coming by. Definitely was happy with the turnout. I actually have another situation on my side with owning Kraft, should be interesting, as I’m up 32+% today due to the merger agreement that is now out their with Heinz. It should be another fun filled adventure with what my capital becomes, sounds like a promising company.

      -Lanny

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