Is Universal Corporation (UVV) The Best High Dividend Stocks Under $100?

Universal Corporation (UVV) is a name that has been making waves in the investment community, particularly among income-focused investors. With a forward dividend yield of approximately 5.96%, the company is certainly worth a closer look. But is it the best high dividend stock under $100? Let's dive into the details to find out.



Universal Corporation is a leading supplier of leaf tobacco and other plant-based inputs to consumer product manufacturers. The company has a long history of paying and increasing dividends, having done so for 53 consecutive years, earning it the status of a Dividend King. This consistency is a testament to the company's financial stability and consistent performance.

One of the primary factors contributing to Universal's high dividend yield is its current stock price. As of August 27, 2024, the stock price was $54.38, which, combined with the forward dividend of $3.24, results in a high forward dividend yield of approximately 5.96%. This yield is higher than the 5-year average yield, indicating that the stock is currently undervalued relative to its historical average.

However, the sustainability of this high dividend yield in the long term is a concern due to the declining U.S. cigarette industry. The long-term decline in cigarette sales, driven by regulation and health concerns, poses a significant risk to Universal's primary business. As a supplier to the tobacco industry, the company's earnings and cash flow are directly tied to the demand for tobacco products. If the decline in cigarette sales continues, it could lead to a decrease in Universal's earnings and cash flow, which could, in turn, impact the company's ability to maintain its high dividend yield.

To mitigate this risk, Universal has been expanding its Ingredient Operations segment through acquisitions. By diversifying its business into fruit and vegetable supply, the company is positioning itself to take advantage of growth opportunities in these markets. The fruit and vegetable supply businesses have better long-term prospects than the tobacco industry, and the acquisitions allow Universal to leverage its established relationships with farmers and suppliers, as well as its expertise in value-added functions.

In conclusion, Universal Corporation's high dividend yield is primarily driven by its long history of dividend increases and its current undervalued stock price. However, the sustainability of this yield in the long term is a concern due to the declining U.S. cigarette industry. The company's efforts to diversify its business through acquisitions may help to mitigate this risk, but it remains to be seen whether these efforts will be successful in the long term. While Universal Corporation is certainly an attractive option for income-focused investors, it is essential to consider the potential risks and challenges associated with the company's primary business before making an investment decision.