Philip Morris International Inc. (NYSE:PM) Pays A US$1.27 Dividend In Just Four Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Philip Morris International Inc. (NYSE:PM) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase Philip Morris International's shares before the 22nd of March to receive the dividend, which will be paid on the 11th of April.

The company's upcoming dividend is US$1.27 a share, following on from the last 12 months, when the company distributed a total of US$5.08 per share to shareholders. Based on the last year's worth of payments, Philip Morris International has a trailing yield of 5.3% on the current stock price of $95.39. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

See our latest analysis for Philip Morris International

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. It paid out 87% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Over the last year, it paid out more than three-quarters (80%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Philip Morris International's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Philip Morris International, with earnings per share up 8.5% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Philip Morris International has delivered an average of 5.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is Philip Morris International an attractive dividend stock, or better left on the shelf? Earnings per share have been growing modestly and Philip Morris International paid out a bit over half of its earnings and free cash flow last year. All things considered, we are not particularly enthused about Philip Morris International from a dividend perspective.

If you want to look further into Philip Morris International, it's worth knowing the risks this business faces. For example - Philip Morris International has 2 warning signs we think you should be aware of.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

What are the risks and opportunities for Philip Morris International?

NYSE:PM

Philip Morris International

Philip Morris International Inc. operates as a tobacco company working to delivers a smoke-free future and evolving portfolio for the long-term to include products outside of the tobacco and nicotine sector.Show more

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Rewards

• Trading at 42% below our estimate of its fair value

• Earnings are forecast to grow 6.46% per year

Risks

• Significant insider selling over the past 3 months

• Has a high level of debt

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.