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In my search for the "perfect" investments for a Roth IRA account, I have stumbled across a number of intriguing investments. Since I have at least 30-35 years until retirement, I am focused on buying very long-term investments - both stocks and ETFs - which I believe will outperform the market over that time period. Short-term fluctuations in the market make little difference.

What I am looking for specifically is this:

- Companies that have a long-term track record of paying a steady dividend and increasing that dividend year after year. Realty Income Corp (NYSE:O) was one company which fit my profile and I highlighted them in the first article of this series.

- I love the idea of re-investing those dividends every chance you get through a dividend reinvestment plan (DRIP), for a couple of reasons. Mainly, I like that a DRIP allows you to purchase more shares without actually buying more shares; your dividends are paying for your new shares - which earn you more dividends. Then the process repeats itself over and over again.

- A dividend re-investing plan also automatically dollar costs averages your positions over time, another powerful long-term investing strategy. Dollar cost averaging will allow your dividends to purchase more shares when the price of the stock is down (and less when it is up).

During an economic recession or a depression (which are inevitable and will most certainly happen at least one more time before I retire), this could make all the difference. I also feel that dollar cost averaging is somewhat of a safety net to guard your positions in the event of a downturn, and this is why I would not even consider owning a stock without a dividend in a Roth IRA.

- Next, the company should have a history of share repurchases or buybacks. I like share repurchases for a number of reasons. First, it obviously reduces the overall share count, which tends to lead to a higher earnings per share and higher value of the stock. Better yet, the company could initiate a share buyback at a time when they think the stock is undervalued (perhaps during a market downturn). Share buybacks, in my opinion, signal that the management team is focused on increasing long-term shareholder value and believes in the company.

- When I am picking individual stocks, I look for companies that have been around for some time and aren't going anywhere; companies which own a large part of the market share in their industry, but also have some opportunities to grow. For example, McDonald's (NYSE:MCD) has been around since 1948 and continues to dominate the fast-food industry but is constantly innovating its brand. Coca-Cola (NYSE:KO) is another national brand which controls 42 percent of the soft drink market.

These are just a few examples.

So What is the "Perfect" Stock for a Roth IRA?

Perhaps there is no "perfect" investment for any Roth IRA account as there are no guarantees with any investment.

I certainly don't recommend going all-in on any one investment. As I mentioned in previous articles, I think a balance between a few diversified, low-expense ETFs and some dividend paying stocks is the right idea for a Roth IRA.

Based on the criteria above, I believe that Phillip Morris (NYSE:PM) is a very good choice for a Roth IRA account, and I will try to prove my point below.

Why Phillip Morris?

Phillip Morris International is the largest tobacco company in the United States. The company's products are sold in 160 countries and the company has a very wide range of products, which include the well-known Marlboro brand, the number one cigarette brand in 49 US states and the world's best selling international cigarette.

Marlboro's retail share in 2012 was 43.6 percent, which was actually larger than the next 11 cigarette brands combined, according to the company.

The company also has the Merit, Parliament and Virginia Slims brands, as well as L&M, Chesterfield, Next and Red & White.

Phillip Morris is not to be confused with Altria Group (NYSE:MO), which the company was spun-off from in 2008.

Stock Information and Market Performance

Phillip Morris has a current share price $85.76 and a market cap of $137.4 billion. The stock currently pays a dividend of $3.76 per share, giving shares a yield of 4.4 percent.

You will see below that shares of Phillip Morris have outperformed the S&P 500 by a great deal since 2008, as the stock has returned 73.64 percent since then:

Credit: Yahoo Finance
(Click to enlarge)

Shares have also outperformed its peers Reynolds American (NYSE:RAI) and Altria Group.

Market Share Growth

The company continues to gain market share in the cigarette industry internationally.

The company's market share in Asia (excluding China) has grown from 5.7 percent in 2008 to 6.6 percent in 2012. During that period, overall international market share increased from 9.2 percent to 9.4 percent, as you'll see in the chart below.

Credit: Phillip Morris Company Presentation
(Click to enlarge)

- From Q1 2012 to Q1 2013, the company increased its market share in the European Union from 37.4 percent to 38.1 percent.

Recent Acquisitions Could Add Long-Term Earnings Growth

- On Dec. 4, the company announced that they acquired a 20 percent interest in Russian Megapolis Group for a payment of $750 million, and an additional payment of up to $100 million contingent upon operational performance over the four years following the closing of the purchase.

Phillip Morris expects this transaction to be accretive to earnings starting in the first quarter of 2014.

"In addition to enhanced earnings and cash flow for PMI, this investment paves the way for infrastructure expansion and improved operating efficiencies in the strategic area of distribution in Russia, and will therefore benefit our wide portfolio of leading brands," said Miroslaw Zielinski, PMI's President, Eastern Europe, Middle East & Africa Region and PMI Duty Free. (Source: Dec. 4 Release)

This could be a big long-term win for Phillip Morris as they gain more market share in Russia, which is internationally the largest cigarette market outside of China.

- On Sept. 30, the company announced its entry into a definitive agreement to acquire a 49 percent stake in shares of United Arab Emirates-based Arab Investors-TA, for $625 million.

Through this acquisition, Phillip Morris will secure a 25 percent economic interest in the Société des Tabacs Algéro-Emiratie ("STAEM"), which is a joint venture 51 percent owned by AITI and 49 percent owned by the Algerian state-owned Société Nationale des Tabacs et Allumettes SpA.

"Over the last five years, Algeria has been a key driver of the growth of our premium brands in North Africa and the investment we are announcing today will significantly enhance our prospects in the country," said Miroslaw Zielinski, PMI's President, Eastern Europe, Middle East & Africa Region and PMI Duty Free.

"Our new partnership with the UAE-based investors from whom we are acquiring the 49% interest in AITA also opens additional business opportunities in Egypt and certain other North African and Middle Eastern markets where there is potential for further expansion." (Source: Sept. 30 release).

- On May 21, the company announced they would acquire a remaining 20 percent interest in its Mexican Subsidiary, Philip Morris Mexico, S.A. de C.V. after 30 years of partnership. The company said this transaction will be immediately accretive to EPS, starting in the fourth quarter of 2013.

Solid Financial Results

- Phillip Morris has a 5-year dividend growth rate of 18.8 percent and a 3-year EPS growth rate of 11.8 percent.

- In the third quarter of 2013, the company announced diluted EPS of $1.44, a growth rate of 9.1 percent year-over-year.

- Net revenues were up .1 percent to $7.9 billion.

- The company increased its quarterly dividend by 10.6 percent to $3.76 a year, while repurchasing 16.7 million shares of the common stock for $1.5 billion.

- The company revised its 2013 full-year EPS guidance to be in a range of $5.35 to $5.40, up from $5.17 in 2012.

- However, total cigarette shipment volume of 223.1 billion units decreased by 5.7 percent, or 13.4 billion units which was due mainly to a total industry volume decline, due to the "unfavorable impact of excise tax-driven price increases in the European Union."

- Regulatory risk in the EU remains a problem for Phillip Morris. Still, the company said their market share increased in a number of markets, including Algeria, Argentina, Canada, Brazil, Greece, Italy, Turkey, the UK, etc. With the recent acquisitions, it appears the company is getting away from the EU to lessen the regulatory impact.

Share Buybacks and Dividend Increases

Phillip Morris has a solid history of dividend increases and share buybacks, which is a very positive sign that the company is in a financially solid position.

In fact, dividends paid per share has gone up every year since 2008:

2008 $1.84
2009 $2.24
2010 $2.32
2011 $2.82
2012 $3.24
2013 $3.58

2013 includes the three quarters to date, plus a fourth quarter estimate of $.94).

- This represents an outstanding dividend increase of 84.8 percent since 2008.

- Phillip Morris also has an aggressive share re-purchase program in place. The company announced their current $18 billion, three-year share repurchase program in August of 2012.

In the 3Q 2012, the company spent $1.5 billion to repurchase 16.7 million shares of common stock. However, the company still plans to purchase more shares in the future, bringing down the total current share count of 505.7 million.

- How is the company able to return so much capital to shareholders? Solid free cash flow. The company recorded an annual compound growth rate in free cash flow from 2007 - 2012 of 13.3 percent, from $4.5 billion in 2007 to $8.4 billion in 2012.

- Of the $40.7 billion in free cash flow, $24 billion was paid out in dividends, with $27.9 billion going towards share repurchases and $2.3 billion on acquisitions:

Credit: Corporate Presentation
(Click to enlarge)

- However, as mentioned previously, the company is also making acquisitions which they believe will be accretive to shareholders.

Long-Term Growth Potential in E-Cigs

Phillip Morris also has the opportunity to tap into the rapidly growing E-cigarette market. As I've said in a previous article on E-cigs, I believe this market is young but has very large upside in the long-term.

We are talking about a $500 million industry which could grow to $10+ billion over the next 5-10 years.

According to a recent report by Trefis, the market could double in market size this year alone:

"We expect the e-cigarettes category to grow quickly off of a small base on increasing awareness and penetration as well as expanding retail distribution. Harmful health effects and high excise taxes on traditional cigarettes are increasingly driving consumers towards the niche category."

Some analysts even think e-cigs could outsell the conventional cigarette in time.

Lorillard (NYSE:LO) is currently on top in the E-cig market with its Blu-Cig brand. However, Phillip Morris is planning to enter the market by the second half of next year.

This is a very young, untapped market with big potential so I think Phillip Morris has another great long-term opportunity here.

Some Potential Long-Term Risks

Phillip Morris does come with some risks; mainly, since we are talking about a tobacco company, the company is faced with regulatory risk from various governments and heat from anti-tobacco groups.

I would argue that we are now in the year 2013 and this has not affected the company or the stock to a great degree as the stock has outperformed major indexes year-after-year. Also, the company has been in operation since 1847 and since the year 1983, the company has been the largest cigarette manufacturer in the USA.

Regulatory risk is a risk to owning shares of any tobacco company, but I don't think that investors should completely ignore Phillip Morris for this reason.

Whatever You Do, Just Start Now

Whether or not you like Phillip Morris as a long-term investment, the best thing I think people can do is start adding to their retirement accounts as soon as humanly possible.

As I mentioned in my last article, the difference between starting now, and say, 5 or 10 years from now, is absolutely huge.

Example: If you start today with $5,000 and add just $1,000 per year, and make 8 percent interest a year on your investment, then in 30 years you will have over $172,000. However, if you apply the same formula but only for a period of 20 years, you will end up with about $72,000, or nearly $100,000 less! Check out this compound interest calculator for yourself.

What do you think is the best investment for a Roth IRA account? Please comment below with your thoughts.

Source: This Could Be The Perfect Stock For A Roth IRA, Part II