Take Vector Group , a tobacco play that offers 9.3 percent. If Cramer had his choice—and right now he thinks the growth is this business is under pressure, whether from regulations or fewer smokers—he’d rather see investors in Altria Group . Sure, it yields a lesser 6.3 percent, but the underlying business is much, much stronger than Vector’s.
Liggett Group, Vector’s cigarette subsidiary, controlled just 2.7 percent of the market in 2009, shipping about 8.6 billion cigarettes. Ever hear of these brands? Eve, Grand Prix, Liggett Select, Pyramid? Probably not unless you’re a hardcore smoker. Now compare that to big MO, controller of more than 50 percent of the U.S. tobacco market. Altria shipped 148.7 billion cigarettes in 2009 and boasts highly visible brands like Marlboro, Virginia Slims and Parliament.
But again, this business is under serious pressure now. And it’s Altria’s ability to weather the storm that also sets it apart from Vector. See, MO also dominates 50 percent of the smokeless tobacco biz (think chew and snuff), boasts a strong cigar business in John Middleton and owns 28 percent of SABMiller, the world’s second-largest brewer. This diversification gives Altria a leg up on Vector, which by contrast owns 50 percent the largest residential brokerage company in the New York metro area.
“Maybe there’s some value there,” Cramer said, “some bizarre synergy. I thought about it all day. I didn’t see it.”
Hence these numbers: For the first nine months of 2010, Vector’s operating income declined 23 percent from the year before. Altria’s climbed 5.6 percent. Still, that’s the slow part of the business. And Altria offset that with its smokeless division, whose operating income jumped 94 percent in that same period. Plus, the company raised prices, something Vector with its lack of brand loyalty couldn’t do.
And then there’s the dividend. Vector pays 40 cents a share a quarter, but earned just 14 cents a share at its last report. That’s unsustainable. Not to mention, the company’s share price has been slipping, which is the real reason that yield is up so high.
With the ailing business, weak earnings and overexposure to a struggling industry, Cramer can’t recommend Vector for its dividend, no matter how attractive the yield looks. Because there’s a very good chance that dividend gets cut. Better to go with Cramer fave MO.
“Why would you ever own a loser like Vector,” Cramer asked, “when you could own a best-of-breed player like Altria instead?”
Call Cramer: 1-800-743-CNBC
Questions for Cramer? email@example.com
Questions, comments, suggestions for the Mad Money website? firstname.lastname@example.org