Today I purchased 100 shares of Philip Morris (NYSE: PM) stock at $78.97 per share, totaling $7,905.95. This purchase will add $400 dollars to my annual dividend income. I am excited to add Philip Morris to my Investment Hunting portfolio. This is the first purchase I have made with my 401k and Roth 401k rollover funds. I will be making 4-6 additional purchases this week totaling roughly 25% of my rollover amount. My remaining funds will be added back to the market over the next 6 to 9 months. Adding a company with a high yield like Philip Morris takes me one step closer to my goal of intentional drip investing.
An Overview of Philip Morris
Philip Morris manufactures and sell cigarettes and other tobacco products in 180 and non U.S. markets. Popular brands include: Marlboro, Merit, Parliament, Virginia Slims, L and M, Chesterfield, Bond Street, Lark, Muratti, Next, Philip Morris and, Red and White.
Philip Morris is split into 5 regional segments: European Union, Eastern Europe, Middle East and Africa, Asia, and Latin America and Canada. The Company also owns smaller regional brands specific to locales. Philip Morris was an international brand spin-off of the Altria Group, Inc. in 2008.
Why I Am Buying Philip Morris
I am a Dividend Growth Investor and I believe Philip Morris is a good stock to hold in a DGI portfolio. Philip Morris is currently yielding a 5.07% annual dividend. I have been watching PM stock for the past six months. Philip Morris’ P/E Ratio has been on a slight decline, primary due to international currency concerns against a strong U.S. dollar. Additionally, tobacco stocks have struggled internationally of late, due to anti-tobacco legislation in the Ireland and the UK. A dropping stock price and P/E Ratio have made an attractive stock more attractive, which is why I made my purchase today.
Philip Morris Dividend Growth Rate and Yield
- 3-Year Dividend Growth Rate of 11.2%
- 5-Year Dividend Growth Rate of 11.6%
- Annual Dividend Yield of 5.07%
- Annual Dividend Per Share Rate of $4.00
- 5-Year Dividend Per Share Average of $3.19
- 5-Year Dividend Yield Average of 4.08%
Philip Morris has paid a dividend every year since inception, which is 7-years. The chart below illustrates Philip Morris’ commitment to investors through dividend increases over the past 7-years.
How Much Is Philip Morris Stock Worth
Philip Morris is currently trading at a P/E of 16.50.
Some, but not all analysts think PM stock is undervalued. Argus ranks PM as a buy with a price target of $95. Morningstar ranks PM a 4-star stock with a price target of $92. S&P Capital IQ ranks PM as 3-stars with a price target of $76.10. I believe the true stock value is somewhere between $85 and $90.
Earnings Per Share
- 1-year EPS Growth of 4.81%
- 5-year EPS Growth of 8.96%
Other Key Metrics
- Dividend Payout Ratio — 81.61%
- Gross Profit Margin — 64.94%
- Operating Profit Margin — 39.31%
- Net Profit Margin — 25.37%
- Cash Flow Per Share — $5.37
Philip Morris has a much higher dividend payout ratio than I usually go for, however for their industry this is not abnormal. Given the high ratio, I expect dividend increases to reduce in coming years, but still maintain an upward slope.
Philip Morris Risks
All investing comes with risk. Investing in tobacco comes with additional risk.
Risk 1 – Government Regulation
Tobacco has been under fire and will continue to be attacked by governments. Legislation to control tobacco advertising, branding are on the up-swing. Additionally, tobacco is generally a product targeted for additional taxation.
Risk 2 – Lawsuits
Tobacco is a harmful product. There is enough science to prove that tobacco kills. I foresee more lawsuits in the next two decades than ever before. Lawsuits will come from individuals, class actions, and governments.
Risk 3 – Currencies
It’s no secret, the U.S dollar is currently strong. A strong dollar will hurt PM as the entire company sells products outside of the U.S.
Trading at a yield above 5%, Philip Morris is an excellent stock to add to a dividend growth investor portfolio. I know PM will have reduced sales and income the next 24-months. However, as a long-term investor, I like my chances with PM stock.
What is you opinion of the markets current evaluation of PM? Do you think will be able to maintain its high dividend yield?
Disclosure – I am an investor, not a smoker. However, I believe in the freedom of choice. I support those who choose to smoke and I support free markets. I am freely exercising my right to vote with my dollar on an investment in Philip Morris. Every time I write about investing in tobacco stocks I get a bunch of negative comments. Let me say this; there are very few companies to invest in where some segment of our population, whether it be humans, animals or nature are not at risk. Name a publicly traded stock, and I’ll find some group who’s shaming it. If tobacco investing is not for you, I respect your decision.
Full Disclosure: Long PM