Consistent upward movement
On May 12, 2016, Reynolds American (RAI) was trading at $51.51. The stock price rose by 0.6% after the investors meeting in London. RAI’s stock has risen by 9.8% year-to-date and by 58.6% since January 2015. However, the stock price fell by 0.2% to $48.31 on April 26, 2016, after its results were announced.
Reynolds American’s stock has consistently seen an upward movement since the beginning of 2015. On March 10, Reynolds was trading at its two-year peak of $51.89.
Stock price versus peers
In comparison, the benchmark S&P 500 Index (SPY) (IVV) (VOO) has also fallen by 0.5% since January 2015 and has risen by 1.7% year-to-date. Among the other tobacco companies, the stock prices of Vector Group Limited (VGR), British American Tobacco (BTI), and Philip Morris (PM) increased by 2.4%, 14.1%, and 22.1%, respectively, since January 2015.
Reynolds American’s (RAI) stock gained momentum due to its recent announcement of the asset sale to Japan Tobacco (JAPAF) (JAPAY) for $5 billion on September 29, 2015. RAI has risen by 14.1% since then. To learn more about this deal, please read Japan Tobacco Buys Natural American Spirit’s International Assets.
Shareholder return and debt repayment
During 1Q16, Reynolds American’s board approved an increase of 16.7% in its quarterly cash dividend to $0.42 per share, or an annualized $1.68. This is consistent with RAI’s 75% target payout ratio. Since 2004, RAI’s total shareholder return until April 2016 was 942%, significantly outpacing the S&P 500 Index.
The company aims to repay debt and remains focused on deleveraging as quickly and efficiently as possible while continuing to return excellent value to shareholders. RAI’s long-term debt at the end of 1Q16 was $13.3 billion with a 4.9% average interest rate and an average maturity of 12.6 years. On April 15, Reynolds made its MSA payment of $2.3 billion, including $597 million paid into the NPM disputed payments account.
In the coming parts, we will discuss key takeaways from Reynolds American’s 1Q16 results.