Philip Morris International (PM) has one of the largest, fastest growing, most stable dividend payouts investors will ever come across. At its current 4.7% yield, shares have typically paid out over a 4% yield since 2009. With a growing share price however, the company has been able to grow the payment over 12% per year to keep a stable dividend yield.
Philip Morris International has also grown EPS at an impressive clip, more than covering the cost of both rising dividend payments and growth projects. In the future however, can investors yet again count on these large and consistent dividends?
The Business
While overall cigarette sales have been declining 1-2% annually in most regions around the world, PM has been able to consolidate its market leading brands to stem the pressures of a weak industry environment. The company has grown its size in all segments since 2008 to attain a 28% total global market share.
Fortunately, along with high market shares across most geographies, the company also has a diversified revenue stream. Last years sales (shown below), have exposure to larger, more stable regions such as the E.U., while also maintaining exposure to high growth areas such as Asia.
Even with sluggish unit growth on a total global level, PM has commanded incredible pricing power, raising prices an average 6.7% per year since 2008.
Management has also been very shareholder friendly, paying out an industry-leading amount in both dividends and share buybacks.
The current dividend yield is also very attractive when compared to competitors such as British American Tobacco (BTI), Imperial Tobacco (IMT), and Japan Tobacco (2914).
Guru Ownership
Phillip Morris International is owned by a slew of Gurus such as Jeremy Grantham (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), and Tom Gayner.
Valuation
While most would believe that cigarette sales are declining, the pricing power and emerging market growth have helped drive sales and earnings higher year after year. Even with a 5% annual EPS growth rate over the past five years, analysts expect the company to beat that over the next five years, growing at over 6% annually.
For this year, analysts anticipate EPS of $4.42.
Using these estimates at an 8% discount rate (justified given the stability of the business), GuruFocus' DCF calculator shows that shares are roughly 11% undervalued. With a 4.7% dividend yield that is fully covered by a growing earnings base and a more than fair entry price, PM stock looks attractive for both growth and income investors alike.
For more ideas like this one, check out GuruFocus’ High-Yield Dividend Stocks List or the rest of R. Vanzo’s Articles.
