However, this risk is mitigated by the fact that governments need the money paid by tobacco companies. It is much easier to tax the evil tobacco companies, than raise taxes across the board. Therefore, while governments have a love-hate relationship with big tobacco, they do need it at the same time. For example, when Australia started the plain packaging, this has resulted in lower tax revenues on tobacco products for the government, due to increase in illegal sales. By the way, Australia is not even mentioned when PMI discusses changes in annual volumes sold per region. So I do not see this as a big impact on PMI’s overall profitability thus far.
The company has managed to more than double quarterly dividends since it was spun-off from Altria in 2008. Quarterly dividends increased from 46 cents per share in 2008 to 94 cents per share by the end of 2013.
The dividend payout ratio is at 60% for 2012, and based on expected earnings for 2013 I see it at approximately 65% for 2013.
The thing I really like about PM is that it is able to grow earnings organically, while also paying generous rising dividends to shareholders and consistently buying back stock. I am a firm believer that the company offers something that every serious dividend growth investor craves – solid underlying fundamentals, strong competitive advantages and a wide moat, widely recognizable brands, growth in net income, shareholder friendly management, decreasing number of shares and most importantly a commitment to increasing dividends. As a result, it is no surprise that Philip Morris stock is one of the largest holding in my dividend portfolio at the time of this writing.
Currently, the stock is attractively priced at 15.80 times earnings, and yields 4.40%. If I were starting my dividend investment journey today, PMI would be high on my list for purchasing.
I am going to end up this article with the following quote from Warren Buffett :”I’ll tell you why I like the cigarette business. It cost a penny to make. Sell it for a dollar. It’s addictive. And there’s a fantastic brand loyalty.”
Full Disclosure: Long PM, MO