Philip Morris International Inc.'s (NYSE:PM) dividend will be increasing to US$1.25 on 14th of October. Even though the dividend went up, the yield is still quite low at only 4.8%.
Philip Morris International's Earnings Easily Cover the Distributions
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, Philip Morris International's was paying out quite a large proportion of earnings and 76% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.
Over the next year, EPS is forecast to expand by 10.0%. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 80%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.
Philip Morris International Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2011, the first annual payment was US$2.56, compared to the most recent full-year payment of US$5.00. This means that it has been growing its distributions at 6.9% per annum over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
We Could See Philip Morris International's Dividend Growing
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see Philip Morris International has been growing its earnings per share at 6.3% a year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.
Our Thoughts On Philip Morris International's Dividend
Overall, we always like to see the dividend being raised, but we don't think Philip Morris International will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don't think Philip Morris International is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Philip Morris International that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
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What are the risks and opportunities for Philip Morris International?
Trading at 34% below our estimate of its fair value
Earnings are forecast to grow 6.59% per year
Has a high level of debt
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.
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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.
6 star dividend payer and fair value.