Philip Morris as a Hedge Against Declining U.S. Dollar

I received Phillip Morris International (PM) shares from Altria in last year's spinoff. Due to the deteriorating US legal environment for tobacco recently, I sold my long time holding Altria (MO) in December and now only hold PM shares.

Of the two, I consider PM the company with better longer term prospects and business environment.

One overlooked investment thesis for PM is that it is a hedge against the general devaluation of the US dollar. PM sells tobacco in other nations in their local currencies, it then converts those currencies to US dollars for reporting purposes. As the dollar falls in value, those conversions yield more dollars for shareholders.

For those who do not want to go through the whole presentation, slide 67 is the applicable slide. The comments were:

In August last year, we raised our dividend by 17.4% to an annualized rate of $2.16 per share and we have confirmed our willingness to exceed our target 65% dividend payout ratio in 2009. At the current stock price, our dividend provides an attractive yield of approximately 5.2%.

We have completed over half the $13 billion two year share repurchase program that we initiated in May 2008 and are one of the few major companies in the world to have maintained their share repurchase program throughout the current financial crisis.

All in all we expect to return some $9 billion in cash to our shareholders during 2009.

So we have a 5% dividend yield and a company growing earnings 10-12% annually. Based on that earnings growth, we should see a dividend next year or $2.43 a share for a current yield of 5.7%. PM did say they may consider exceeding that (65% of earnings) this year which would boost it higher.
Phillip Morris International

Disclosure: Long PM

Comments

[whisperonth...:]

So what you're saying is that it's okay to invest in International tobacco but not American? So this Buy American theory is BS, right? Hmmm. Guess I'll go take my Toyota out for a spin.

Jun 28 08:37 AM

[mdpath:]

What are your thoughts about more onerous restraints and additional taxes put upon PM by european countries. Will they follow the USs lead?

Jun 28 11:49 AM

[Old Rick:]

Good article Todd. I did exactly the same thing with my MO spin-off and recently increased my PM holdings by 75%. I see the same inflation and devaluation scenario in 2-3 years (just in time for the 2012 election). I would add to the smokes thesis, a booze thesis in Diageo. I'm slowly moving to either int'l stocks or domestic stocks with a big int'l presence (MSFT for one).

Jun 28 01:07 PM

[Old Trader:]

mdpath,

You're correct in pointing out additional headwinds for tobacco in the EU, but the bulk of the (still growing) foreign markets are in Asia and Eastern Europe. Actually, I wonder what will happen in the EU. A couple of years ago, I spent a bit of time in France, where legislation on smoking in public places had just been enacted (similar to laws passed in various places, here in the States), and what I saw was little, if any actual enforcement.


On Jun 28 11:49 AM mdpath wrote:

> What are your thoughts about more onerous restraints and additional
> taxes put upon PM by european countries. Will they follow the USs
> lead?

Jun 28 03:23 PM

[optionsgirl:]

Buy American has nothing to do with it. Any time you decide to buy a stock, you'd better buy it based on the fundamentals of that particular company. What does Buy American mean in a global economy? Is a Ford truck made in Canada or a Subaru made in Indiana buying in America?


On Jun 28 08:37 AM whisperonthewind wrote:

> So what you're saying is that it's okay to invest in International
> tobacco but not American? So this Buy American theory is BS, right?
> Hmmm. Guess I'll go take my Toyota out for a spin.

Jun 28 04:20 PM