Seeking Alpha
Long only, value, growth, dividend investing
Profile| Send Message|
( followers)

Summary

  • For each S&P 500 industry sector, I will be taking a look at available companies to help determine the best stocks for income investors.
  • In determining the best stocks per industry, I will be examining both the dividend growth and dividend yields of the stocks.
  • Philip Morris is the stock in this group that I feel is currently the best buy for income investors.

Overview

In this series of articles, I will be identifying which stocks for various S&P industries are best suitable for income investors, based on dividend growth and yield. For Part 5, I will be taking a look at Tobacco stocks. These stocks include:

  • Altria Group (NYSE:MO)
  • Lorillard (NYSE:LO)
  • Philip Morris International (NYSE:PM)
  • Reynolds American (NYSE:RAI)

When ranking the dividend-paying stocks by yield, the order is as follows:

  • Altria Group - 4.68%
  • Reynolds American - 4.55%
  • Philip Morris International - 4.25%
  • Lorillard -3.87%

When ranking them by dividend growth over the past five years, the order is as follows:

  • Lorillard - 100.50%
  • Philip Morris International - 74.07%
  • Reynolds American - 57.65%
  • Altria Group - 50.00%

Each of these stocks are worth considering for income investors. All of the stocks have attractive dividend yields, and each has averaged annual double digit dividend growth over the past five years.

The two highest yielding stocks have been the two lowest growing dividend stocks over the past five years. Because of this, comparing each company's financials, price, and future outlook will help determine which stocks are the best buys for long term investors.

Looking at the chart below you can see that Philip Morris and Lorillard have seen positive revenue growth over the past ten years, while Altria Group and Reynolds American have seen declines in revenue.

MO Revenue (<a href=

MO Revenue (TTM) data by YCharts

Just as with revenue, Philip Morris and Lorillard have seen the best earnings growth over the past ten years.

MO EPS Basic Chart

MO EPS Basic ((NYSE:TTM)) data by YCharts

You can see from the chart below that Philip Morris has the lowest trailing PE ratio of the group, while Reynolds American has the highest.

MO PE Ratio Chart

MO PE Ratio ((TTM)) data by YCharts

In terms of forward PE ratio, Altria Group has the lowest and Lorillard has the highest.

MO PE Ratio (Forward) Chart

MO PE Ratio (Forward) data by YCharts

Philip Morris has the lowest payout ratio of the group, while Reynolds American has the highest.

MO Payout Ratio (<a href=

MO Payout Ratio (TTM) data by YCharts

Based on EPS estimates for current and next four quarters, Philip Morris leads this group of four stocks while Altria Group comes in last.

MO EPS Estimates for Current and Next 4 Quarters Chart

MO EPS Estimates for Current and Next 4 Quarters data by YCharts

Conclusion

Based on several factors, Philip Morris is my favorite stock out of the four for income investors. While the company has the third highest dividend yield and the second highest dividend growth, it has several positive features that bring it front and center in terms of tobacco stocks.

Philip Morris has had the highest revenue growth over the past ten years, the second highest earnings growth, the lowest payout ratio, and the highest earnings estimates for current and next four quarters. The company has seen some very recent struggles with revenue growth and currency headwinds, having disappointing values in its latest earnings report; however, I feel that much of the companies recent troubles are short-term problems and believe the recent drop in price has presented a good price point for income investors to take advantage of.

As always, I suggest individual investors perform their own research before making any investment decisions.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: The Best Dividend Growers, Part 5: Philip Morris