Tomorrow is D-Day for Philip Morris (PM). September 11, will likely be "dividend-day", when I expect Philip Morris to announce a boost in its dividend. Why? Philip Morris traditionally increases the dividend on the second Wednesday in September. Last year, Philip Morris raised its dividend on September 12; in 2011, the company boosted the dividend on September 14 - both Wednesdays.
Philip Morris has been paying $0.85 a quarter, currently equaling a 4% rate. Management sets the dividend at a 65% pay out. To date, Philip Morris has painted a dismal picture of rising excise taxes, currency headwinds, and discouraging packaging requirements. This will be investors' chance to gauge the upcoming quarter before management unveils earnings on October 17.
If Philip Morris comes in as expected for FY 2103, ending in December, the company will make $5.44 for the year. At a 65% payout, Philip Morris would likely increase the dividend to $0.88 a quarter, or a 3.5% increase. Any less, would suggest a disastrous second half of the year. Any more and shareholders can look forward to smooth sailing with an earnings upside surprise.
Dividends do more than capitalize shareholders. In Philip Morris' case, a new dividend will likely be an excellent tell for how well the company is performing. Trade accordingly.
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