Lorillard, Chevron and a Payout

Adam Energy, Investing Leave a Comment

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Well, our Lorillard journey has come to an end. Too bad, but we did do well playing the vices sector. I regret not buying more. I only ended up with a half position before the stock ran up beyond my buy price.

Lorillard shareholders will receive, for each Lorillard share, $50.50 in cash and 0.2909 of a share in RAI stock at closing, representing $68.88 per share based on RAI’s closing share price yesterday. That represents a premium of 40.4% to the stock price on February 28th.

My shares were purchased at around $67 and I received several additional shares through my DRIP.

When the RAI transaction closed, I ended up with a pretty solid cash payout in addition to a number of RAI shares and a return of about 60%, which is a pretty phenomenal outcome. I’ve chosen to hold on to the RAI shares for the time being.

Deploying Capital

So what did I do with the money? While I’m already overweight energy, I just couldn’t help myself. I purchased more Chevron below $100 (which is amazing).

chevron 2015-06-29

I’ll quote from the Conservative Investor, who I consider one of the better thinkers and clearest writers on long-term investing.

In the super short term (next few months to two years), I have no idea what Chevron stock will do. Oil prices could fall to $50 and the stock could fall to the $80s, or oil prices could mark a swift recovery and the price of the stock will be in the $150s before you know it. I offer no prediction for those interested in a short term trade. But, for those looking for safety, growing dividends, and possibly great total returns over the next five to twenty years, Chevron fits the bill. For someone looking to deploy a large sum of capital in something that is safe, has a yield twice the S&P 500, is slated to grow, and isn’t overpriced, Chevron seems like a very attractive candidate for “buy it and forget it” investing right now.

Chevron is yielding an amazing 4.43% with a payout ratio below 50%. They’ve made prudent moves during this downturn and you can expect their fortress balance sheet and enormous geographic diversity and production levels to carry them through until prices return. Chevron is going to keep pumping oil and money. Now is the time to purchase an amazing company at more than a fair price and reinvest the dividends.

For more on Chevron (better writing and more detail than I have time to write), see here, here and here.

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