I previously wrote articles on both Philip Morris International (PM) and Altria (MO). In them, I described both as shareholder friendly companies with good yields and large buyback programs. In this article, I would like to compare and contrast both companies to see which is currently the better investment choice.
Before I get started, I would like to describe both companies for those who may not be familiar with them:
Altria controls Philip Morris USA Inc. (PM USA), as a wholly owned subsidiary. Altria is engaged in the manufacture and sale of cigarettes and certain smokeless tobacco products in the United States. The company also has other business segments, including wine and a 27.1% interest in SABMiller (SBMRY.PK). On the other hand, Philip Morris International is engaged in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. Keep in mind that the companies do not compete with each other since one sells tobacco products only in the U.S., while the other sells those same products only overseas.
Now, let us start looking at the numbers:
Let's start first with the TTM PE. PE is not my favorite ratio, since both price and earnings can be manipulated quite easily. However, it is a widely followed metric and should be considered. As we can see below, both stocks have similar TTM PEs. In fact, both have historically traded in tandem. Altria has historically traded at a discount to Philip Morris International, however, this has reversed itself recently. Philip Morris International is currently trading with a more attractive TTM PE, and therefore, wins this round.
Now, taking a look at TTM EPS, we can see a clear winner. Philip Morris International has been able to grow EPS at an impressive rate of about 18% per year. Altria's EPS growth has not been as impressive, averaging only about 6%. Philip Morris International easily wins this round in a landslide.
Let us move on to TTM revenue. As we can see, revenue growth for Philip Morris International has been impressive, growing 38% during this time frame. For Altria, revenue has also grown, but at a slower pace of 31%. Philip Morris International wins this round, but only barely.
Now let us take a look at the current dividend. We can see that Altria trades with a much larger 5.3% yield. Philip Morris International currently only has a 3.8% yield. Altria, currently and historically, has provided a higher dividend yield than Philip Morris International and therefore, wins this round.
No comparison of dividend stocks is complete without a look at their dividend growth. We can see that Philip Morris International has provided its shareholders with larger dividend increases than Altria. To be fair, Altria did keep pace with Philip Morris for a few years, although it has recently lagged behind in the increases. Philip Morris International wins this round.
Let us now take a look at the share buyback programs at each company and see which has been more aggressive in this regard. It is not even close, Philip Morris International has reduced its share count an incredible 20%. Altria has only reduced share count by a meager 3.5%. This metric may also explain why Philip Morris International also crushed Altria in EPS. Philip Morris International wins this round decisively.
Finally, let us take a look at the balance sheets for both companies. We can see that both companies have increased their long-term debt substantially. However, interest expenses for both have remained flat. Philip Morris International has increased its debt by 270%, from $8.3 billion to $22.4 billion over the last five years. Altria has increased its debt by 192%, to $13.9 billion over a similar period. However, Altria has been paying a higher interest expense, even with its lower debt load. However, Altria wins this round due to its lower overall debt and slower debt growth.
Now, the tally:
TTM P/E: Philip Morris International wins
TTM EPS: Philip Morris International wins in a landslide
TTM Revenue: Philip Morris International barely wins
Dividend Yield: Altria wins
Dividend Growth: Philip Morris International wins
Share Buybacks: Philip Morris International wins decisively
Balance Sheet: Altria wins
We can see how Philip Morris International, with its aggressive buyback program, was able to rapidly grow EPS while not necessarily growing revenue at a similar rate. However, taking the other metrics into consideration. Philip Morris International is a better stock than Altria, in my opinion. However, this is not saying that Altria is a poor investment choice. Big MO deserves a place in any income seeker's portfolio. Also, keep in mind that Altria has appreciated about 9% since I last wrote about it. However, its spinoff, Philip Morris International, beats it in this match up. Philip Morris's dividend and EPS growth are fantastic, while its current 3.8% yield is not bad, either.