Philip Morris Dividend Stock Analysis

Is the Philip Morris Dividend Safe & Will It Grow?

It has been a while since I completed a Philip Morris dividend stock analysis.

So today, let’s dig into a Philip Morris dividend review to see what it tells us about Philip Morris stock (NYSE: PM) and its prospects.

I’m actually thinking about adding to my Philip Morris shares in the near future.  This PM stock analysis will help me make a decision.

Before we get started, a brief editorial discussion. Since you found your way here, it’s quite possible you think about the implications of dividend investing in “sin stocks” too.

Philip Morris dividend stock analysis

Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.

Socially Conscious Investing & The Philip Morris Stock Dividend

I don’t smoke.  And I do not like being around people who do.  That’s just my personal preference.

On the other hand, smoking is not against the law.  So if people want to smoke, that is fine with me as long as I’m not around them when they are doing so.

As a result, I won’t let my social convictions influence my investing decisions.  In short, I’m not a socially conscious investor.

I follow the cash in the form of dividends regardless of what type of business a company operates. And from my perspective, the Philip Morris stock dividend must stand on its own merits.

If you feel differently, that’s okay. I respect your opinion.

With that editorial comment out of the way, let’s get on with today’s Philip Morris dividend stock analysis. Before we conclude, I’ll give you a bit of my history with this investment.

But, are you looking for something a little different? Then check out our library of nearly 100 dividend stock articles before you go.

I’m sure you will find something of interest. Maybe a few good dividend stocks or investment ideas to improve your finances.

For those of you here for Philip Morris. Let’s first hit some key takeaways from the rest of the article. And a couple of important questions that may be on your mind…

Philip Morris Dividend Stock Analysis Key Takeaways

Here are a few points to take away from this Philip Morris dividend stock assessment.

  • The company is in the midst of a massive and uncertain business transition
  • Their core cigarette business remains cash-rich & supports the current dividend
  • The stock has a high dividend yield
  • However, meaningful future dividend growth depends on successfully transitioning their customers to reduced-risk products (RRPs)
  • The stock appears to be a reasonable value at recent levels
  • I may add to my shares at current or lower prices

Is Philip Morris A Good Stock?

Philip Morris has not been a good stock in recent years.

Starting in mid -2017, Philip Morris shares went into a steady downtrend. The stock lost nearly 50% of its value from top to bottom.

Although Philip Morris remains one of my top 10 holdings. The drop in share price was not pleasant. And, it has been bad news for my dividend growth portfolio as a whole.

Is Philip Morris A Good Investment?

On the other hand, I think Philip Morris is a good investment.

Looking forward, I believe management will successfully execute the transition to reduced-risk products. All the while, traditional tobacco cigarettes will remain a cash cow. And support the substantial dividend payouts for investors.

So, even with the recent years’ fall in value, I believe Philip Morris has been and will continue to be a good investment.

Looking back to my early years of ownership, I made additional purchases with both new funds and dividend reinvestment. The stock price ranged from $30-60 per share during that time.

So I still sit on a nice capital gain. Plus, I have collected some big cash from the large stock dividend payments since I stopped reinvesting my dividends about 8 years ago.

Finally, the dividend appears safe. And, in my opinion, better days are ahead for the share price.

Next, some background on the company…

Philip Morris Company Background

We will get started with a brief company background.

PM Stock Spin-Off

Philip Morris came into existence in March 2008. The company was formed by a stock spin-off from Altria.

Thus, Philip Morris has a relatively short history as a stand-alone company. However, its operations and brands have a long history under its former parent, Altria.

Philip Morris Operations

Philip Morris is a leading international tobacco company.  They employ a global workforce of more than 70,000 people.

Source:  PMI.com – Who We Are

Furthermore, the company has significant brand recognition among smokers.

Cigarette Brands

Some of their well known cigarette brands include:

  • Marlboro
  • L&M
  • Chesterfield
  • Philip Morris
  • Parliament
  • Bond Street

Smoke Free Alternatives

The company also develops and sells smoke-free alternatives to cigarettes.  They call them reduced-risk products or “RRPs” for short.  In this segment, they have a popular heated tobacco system called IQOS.

Source:  PMI.com – Building Leading Brands

Brand Risk

Effective international investments in marketing have led to brand recognition being a competitive advantage for Philip Morris.  Therefore, new laws requiring plain packaging for their packs and cartons of cigarettes are troubling.

Plain packaging laws could erode the company’s brand power.  This is a business risk and an area that deserves watching in the future.

Philip Moris Stock Symbol

Philip Morris stock trades on the New York Stock Exchange. It operates under the ticker symbol PM (NYSE: PM).

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Philip Morris Business Strategy

It is well documented that cigarette use is in global decline.  Because of this, Philip Morris is attempting to transform itself for the future.

They make many statements on their website about the transformation that is underway. I have summarized a few for you.

Dedicated to replacing cigarettes with smoke-free products as fast as possible.

Many scientists, engineers, and technicians are at work in our research facilities developing less harmful alternatives to cigarettes.

It’s the biggest shift in company history.

With their vision and transformation in mind, the company’s goal is to significantly increase annual revenue from RRPs. 

Okay. That’s enough about Philip Morris, the company, its history, products, strategy, and powerful brand recognition.

Next, let’s dive into all the stock dividend facts and figures about Philip Morris.

Does Philip Morris Stock Pay Dividends?

Yes. Philip Morris stock pays dividends. Management has declared and paid regular dividends since the company’s inception in 2008.

How Much Is PM’s Dividend Per Share?

Philip Morris pays an annual forward dividend of $4.80 per share.

Philip Morris Dividend Yield

Based on the recent stock price, the company’s dividend payout puts the Philip Morris dividend yield at a very attractive 5.6%.

Does Philip Morris Have A Dividend Schedule?

This is what I found on the company’s investor relations website:

“Dividends are declared and approved at the discretion of the Board of Directors. The anticipated dividend dates have been adjusted to fit the calendar of Board meetings.”

This is a typical practice for companies that pay dividends. Each dividend must be declared and approved by the board of directors before it can be paid.

But, the statement is vague. So let’s look at past dividend payment schedules to better understand when and how often Philip Morris stock dividends are paid by the company.

How Often Does Philip Morris Pay Dividends?

PM pays dividends every 3 months or 4 times per year. The regularly scheduled dividend payments are one-fourth of the annual dividend rate per share.

In Which Months Does Philip Morris Pay Dividends?

Philip Morris consistently pays dividends in January, April, July, and October.

The dividend payment is typically made on our around the 10th day of the months that I just mentioned.

Looking to fill out your dividend calendar? Here are several stocks paying dividends in the same months as Philip Morris.

Philip Morris Ex-Dividend Date

As an investor in Philip Morris stock, you must complete your investment before the ex-dividend date. That is if you want to receive the next stock dividend payout.

For Philip Morris, the ex-dividend date falls on or around the 20th day of the month PRIOR to when its quarterly dividend is paid.

These dates are subject to change. And they are partially dictated by the timing of the Board’s approval of each quarterly dividend payment.

So, if you want the next payment to increase your dividend income. Be sure to check the company’s investor relations website for the exact dates.

On the other hand, if you are a buy-and-hold investor like me, there is no need to worry. Because after you make your investment, you will be eligible for every dividend payment in the future.

There is nothing more for you to do. Just sit back and collect your passive income from dividends!

Philip Morris Dividend History

Philip Morris is starting to build an impressive dividend history. The company immediately started paying dividends after their split from Altria in 2008. And has increased the dividend every year since then.

The number of consecutive years of dividend increases makes Philip Morris a Dividend Achiever. Dividend Achievers are up-and-coming dividend-payers.

Achievers are stocks that have increased dividends for at least 10 years in a row. And dividends are a key part of capital allocation decisions.

So, we know Philip Morris has a history of growing its dividend. But what does the dividend growth rate look like? Let’s look at that next to better understand dividends from Philip Morris.

Philip Morris Dividend Growth Rate

To see what’s going on with dividend growth, let’s look at the last 7 years. And compare it to years prior.

Table 1: PM Compound Annual Dividend Growth

1 Year3 Years5 Years7 Years
2.6%4.0%3.2%4.4%

In its early years after the spin-off from Altria, dividend growth was quite high. It was not unusual for the company to increase its dividend by 10% or much more each year.

On the other hand, as table 1 shows, dividend growth has been much lower recently.

Philip Morris Dividend Policy

I searched around for any clues about PM’s dividend policy. This is what I found in their investor information kit. Company management says…

“Dividends are the primary use of our operating cash flow after capital expenditures”.

I like a company that states its dividend is a primary objective for their cash.

Next, let’s move on to business fundamentals. And the dividend payout ratios. These elements will help me make a determination of both Philip Morris’s dividend safety and projected dividend growth.

Philip Morris Revenue And Its Influence On The Dividend

In reviewing revenues, I have removed the impact of taxes imposed by regulators. These taxes are just passed through from PM’s customer sales to the taxing authorities in each country in which it operates.

Chart 1: Philip Morris 7-Year Revenue Trend

Philip Morris stock analysis: revenue trend

Historical Revenues

Lower cigarette consumption and the negative impact of exchange rates have taken on a toll on revenue. It has been mostly range-bound for the last few years.

Because Philip Morris transacts much of its business in foreign currencies, a stronger US dollar puts pressure on revenue, profits, and cash flow.  Our dividends are paid in US dollars. So, the stronger U.S. dollar of recent years has constrained profits and therefore, dividend growth.

On the other hand, price increases have supported revenue and profits. The ability to push through price increases is due to the strong loyalty to the company’s brands.

Have you seen the cost of a package of cigarettes lately?  It’s unbelievable to me how much tobacco companies are able to charge. Of course, those prices include the large taxes I just mentioned.

Projected Revenues

Eliminating the impact of foreign currency conversion, company management expects to grow revenues.

The growth is expected to come from these areas:

  • Higher prices for cigarettes
  • Higher volumes for reduced-risk products
  • Product innovation

Next, let’s see how revenues translate to earnings. And what the dividend payout ratios look like.

A company with high dividend payout ratios will usually have lower dividend growth. Let’s see if that will be the case for PM.

Philip Morris Dividend Payout Ratio Based on Earnings

Despite declining volumes in its core business, the company generates substantial and stable earnings.  Profit growth comes mainly from product price increases and operating expense reductions. Plus the volume growth from RRPs.

Chart 2: Philip Morris Dividends & Earnings Per Share

Philip Morris dividend payout ratio
Note: 2017 earnings normalized for the tax cut and jobs act

For 2019, the dividend payout as a percentage of earnings spiked to 100%. This was due to a number of one-time charges to earnings to settle litigation and tax matters.

As expected, earnings recovered in 2020. And are expected to grow modestly looking forward.

With earnings bouncing back, the dividend payout ratio is near 90%. Close to where it has run in recent years.

The dividend payout ratio is quite high.  But because of the predictability of cash flows, I do not find it concerning.

On the other hand, a high payout ratio will keep future dividend growth on the low side. At least until we see sustainable earnings growth that translates into free cash flow.

Speaking of cash. Let’s see how the Philip Morris dividend stacks up against cash flow next.

Philip Morris Dividend Payout Ratio Based on Cash Flow

For 2020, the dividend consumed 80% of free cash flow. And, I expect management to maintain it at or near this level in future years.

Chart 3: Philip Morris Dividends & Cash Flow

Philip Morris dividends vs. cash flow

The company suspended the use of cash for share repurchases in 2015.  Since then, any excess free cash flow after paying the dividend is usually allocated to debt reduction.

Next, I want to determine how PM’s future dividend growth will impact my dividend income.

Philip Morris Projected Dividend Growth

Future dividend growth will be constrained by a number of factors we have discussed thus far. Here is a brief summary of the headwinds to dividend growth:

  • High dividend payout ratios
  • Negative impacts from currency translation
  • Uncertainty about the company’s transition to RRPs

With those items in mind, I project PM’s dividend growth will be 2-4% on an annual basis. Not until I see a sustainable increase in earnings and cash flow will I consider raising my dividend payments forecast.

Keep this growth forecast in mind. It provides some clues as to what I think about Philip Morris’s dividend safety. But before I offer up that opinion, let’s look at the company’s financial position in the form of its credit rating.

Philip Morris Credit Ratings

Philip Morris has an A2 and A credit rating from Moody’s and S&P, respectively.  These ratings represent “investment grade – low credit risk”.

Table 2: Credit Rating Evaluation Grid

Credit rating evaluation grid for each major rating agency

Most solid dividend-paying companies hold investment-grade credit ratings.  And I was glad to see in the company’s investor materials that management clearly states they “remain fully committed to maintaining our single-A credit rating”.

On a side note, I keep an eye on my personal credit rating for free using Credit Karma. You can too. Learn more about Credit Karma here.

Philip Morris Dividend Safety

Now, let’s talk about dividend safety. When I speak of dividend safety, this is what I mean. Is the Philip Morris dividend safe from a reduction for the foreseeable future?

Dividend Risks

First of all, the company’s dividend payout ratios are a little higher than I prefer.

Furthermore, PM is a high yield dividend stock.

Finally, the company is in the midst of a transformation away from a declining product line. The results of which are uncertain.

These are all early signs for higher risk dividends.

But Is The Philip Morris Dividend Safe?

On the other hand, I believe the Philip Morris dividend is safe.

It is supported by:

  • Stable and consistent earnings and cash flows
  • Investment-grade credit ratings
  • Management’s past dividend record
  • Management’s stated policy to use cash flow for the dividend
  • A business that requires minimal capital investments

It is far more likely that future dividend growth is at risk. Versus a dividend reduction.

Any meaningful financial shortfalls will negatively impact dividend growth. As we have seen in the recent past. As a result, my meager dividend growth forecast of just 2-4% annually still stands.

What I Will Be Watching For…

From a business standpoint, a significant spike in the dividend payout ratios. Or a big change in plain packaging laws. Yes. I will be watching for those things.

But most of all, I will become concerned about dividend safety if and when management elects to hold the dividend constant during their typical annual dividend increase cycle. To that point, Philip Morris normally announces its yearly dividend increase in September.

I will be watching at that time every year. Because for me, an early symptom of an upcoming dividend reduction is a missed dividend increase. Watching and reacting to these things are just good money management.

As for now, I am willing to take Philip Morris management at their word on growth projections. And their ability to profitably transition the business to reduced-risk products.  These assertions also support dividend safety.

So, that concludes my review of the Philip Morris dividend. But our stock analysis would not be complete without touching on valuation. So, let’s do that next.

Philip Morris Stock Valuation

Let’s judge value in several ways:

  • Dividend Discount Model
  • Morningstar fair value estimate
  • Price to earnings ratio

Philip Morris Dividend Discount Model

Some investors argue that dividends have no impact on the stock price. However, I do not agree with that assertion. So, I use a dividend discount model as one way to gauge the intrinsic value of a stock.

A single-stage dividend discount model (also known as the Gordon Growth model) considers several factors I have discussed thus far.

  • The current annual dividend payment
  • Projected dividend growth
  • My desired annual return on investment – 9%

Using these assumptions, the Gordon Growth Model example calculates the fair value of Philip Morris stock at $82 per share.

Philip Morris Stock Price to Earnings Ratio

The Philip Morris stock price to 2020 earnings sits at about 16 times. This is not an excessive valuation, in my opinion.

And, I would not expect Philip Morris to trade at a high valuation. Not for a stock with uncertain growth prospects.

Will the collective mind of stock market traders comes to believe in the company’s growth potential from reduced-risk products? I’m not exactly sure. But if they do, the value of the stock should trade at a higher multiple.

Morningstar Fair Value

Finally, the investment analysis firm Morningstar believes Philip Morris stock to be fairly valued at $98 per share.

Philip Morris Stock Valuation Summary

We have looked at several valuation methods that suggest a range of values for Philip Morris stock. 

Here is a summary:

  • Philip Morris dividend discount model – $82 per share fair value
  • PM stock price to earnings ratio – Appears reasonable, not excessive
  • Morningstar Fair Value Estimate – $98 per share

The value measures show that Philip Morris stock appears to be fairly priced at recent levels. Perhaps the stock is slightly undervalued according to Morningstar.

I consider this range to make a Philip Morris stock recommendation for my own purposes. And what I see is a stock reasonably priced for me to make add-on purchases to my shares. On any pullbacks in the share price. But only because I believe Philip Morris management will successfully transition to RRPs.

Next, I will wrap up and conclude today’s Philip Morris dividend stock review. With a few words on where I stand with this investment past, present, and future.

My Experience: Looking Back & Looking Forward With Philip Morris Stock

For many years, Philip Morris stock held the second-largest position in my dividend growth stock portfolio. 

It was second in size only to Altria, its US counterpart in the tobacco trade. I will admit that is a lot of concentration in tobacco companies at the top of my investment portfolio.

Now, I think about the best practices in money management. Perhaps I should have diversified and sold off part of my position in PM stock.

Just like I am considering today with my now largest dividend stock holding. That being Microsoft stock.

Do I wish I would have sold and reduced my share count at the stock price peak in 2017?  Sure, but hindsight is twenty, twenty as the saying goes.

In contrast, I’m a long-term buy-and-hold investor.  I like to hold my dividend-paying stocks forever and collect my monthly dividends.

I’m just not a good enough investor. That is to consistently buy at the bottom and sell at the top.

That is one reason why I like holding dividend stocks for the long term. Dividend stock investing makes timing the market unnecessary.

Long-term buy and hold helps smooth out what can be a volatile ride. Just as Philip Morris stock has shown.

Okay. That’s all I have. Thanks for humoring me with that discussion.

Sometimes it helps me to just step back and reflect on my investments from a big-picture view. Maybe you can learn a little from what I went through.

That’s all. Thanks for visiting!

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Disclosure & Disclaimer: I am not a licensed investment adviser, financial adviser, or tax professional. And I am not providing you with individual investment advice, financial guidance, or tax counsel. Furthermore, this website’s only purpose is information & entertainment. And we are not liable for any losses suffered by any party because of information published on this blog.

I currently own Philip Morris stock and collect the Philip Morris dividend.