Philip Morris International (NYSE:PM) hasn't been the greatest investment over the past year, down 2% during that time. And over a longer five-year period, its returns are even worse, with the company's valuation falling by 9% while the S&P 500 soared more than 90%.
Tobacco isn't exactly a high-growth investment; the company's sales have been stagnant over the years, staying within a fairly narrow range of $28 billion to less than $30 billion since 2017. The positive for investors is that even despite excise taxes, the business continues to generate strong profits, with net margins typically coming in at 24% or better. Philip Morris has also generated more than $9 billion in free cash flow in each of the past two years.
From an income investor's standpoint, those are solid numbers as the company only paid out $7.4 billion in dividends over the trailing twelve months, or 80% of its free cash. And with earnings per share of $5.16, its payout ratio sits at over 90%. And while that is high, it is certainly sustainable, especially from a cash flow standpoint.
The company has also raised its payouts, and so its 5.6% dividend could get bigger in the future. Quarterly payments of $1.20 today are 17.6% higher than they were five years ago, averaging a compounded annual growth rate of 3.3% during that time.
Philip Morris is a good dividend stock today. However, over the long term there are some question marks as to how well it can continue to sustain those payouts it if doesn't find a way to grow its revenue. For now, this could be a good income stock but it's not an investment you can just buy and forget about.
