Japan Tobacco May Raise Dividend to Narrow Gap With Global Competitors

Japan Tobacco Inc. (2914), the world’s third-biggest publicly traded cigarette maker, may raise its dividend payout target to trim gaps with rivals including Philip Morris International Inc. (PM) and British American Tobacco Plc. (BATS)

“We’re obviously behind them,” Executive Deputy President Masakazu Shimizu said in an Oct. 12 interview. The company may raise the target ratio from the current 30 percent of profit in the year beginning April 1, 2012, he said.

Japan Tobacco Inc.

Japan Tobacco Inc.

The cigarette maker rose in Tokyo trading today and is considering the dividend increase after the Children’s Investment Fund Management UK LLP called on the company in September to return more cash to shareholders. Cash, near cash and short term investments rose 66 percent as of March 31 from a year earlier to 277 billion yen ($3.6 billion), according to Bloomberg data.

“Investors know the company has the money to raise dividends, even this fiscal year,” said Mikihiko Yamato, a research partner at Japan Invest K.K. The current 30 percent target would yield a 12,000 yen dividend, up from the company’s planned 8,000 yen, in the current fiscal year, when fixed asset depreciation and goodwill amortization are included, he said.

Shares Rise

The cigarette maker jumped as much as 3.6 percent to 371,000 yen before trading at 369,500 yen as of 1:14 p.m. in Tokyo trading. The shares have gained 23 percent this year, compared with an 14 percent decline in the benchmark Nikkei 225 Stock Average.

Japan Tobacco had a dividend payout ratio of 45 percent, excluding goodwill amortization, last fiscal year for an annual dividend totaling 6,800 yen, a 17 percent increase from the previous year.

Philip Morris International paid out 62 percent and British American Tobacco 79 percent as of the end of last year, according to data compiled by Bloomberg.

Shimizu said a decline in the number of smokers in Japan means the company also needs cash to fuel growth.

“Investments are necessary to make innovative products such as smokeless tobaccos, and to improve product lineups and package designs, in an environment where demands for conventional cigarettes are declining,” Shimizu said. The targets for future dividends and investment haven’t been formally decided by the company, he said.

Japan Tobacco pared interest-bearing debt to 708.7 billion yen as of March 31, from as much as 1.4 trillion yen following the acquisition of Gallaher Group Ltd. in 2007.

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