Philip Morris: My Favorite 2012 Dividend Stock Idea

Nov.28.11 | About: Philip Morris (PM)

I want to discuss and share my favorite dividend stock. The stock will not come as a surprise to anybody who reads my articles. I try and keep investing fairly simple. My goal is the same goal many investors have: build a monthly income that supports their life style. Philip Morris International (NYSE:PM) is the one dividend stock I would advise all investors to own. I am going to touch a few nerves with the reasons to buy this stock. My feelings are strongly rooted on societal issues and the need to ensure you have an enjoyable retirement.

Philip Morris International, Inc.

Philip Morris International is the leading international tobacco company. The company operates in 180 countries. As of 2010, Philip Morris International possessed a 16.0% international market share.

Philip Morris International sells Marlboro cigarettes. The Marlboro name is the world’s number one international selling cigarette brand. The company sells a wide range of international and local tobacco products based upon the specific country in question. Philip Morris International has 7 of the top 15 international cigarette brands.

Philip Morris International is a holding company incorporated in Virginia, U.S. Philip Morris International subsidiaries, affiliates, and associated licensees are engaged in the manufacture, distribution, and sale of cigarettes and other tobacco products. The market areas are specifically outside the U.S. borders.

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Philip Morris International was a wholly owned subsidiary of Altria Group (NYSE:MO) until the distribution of all of the Philip Morris International shares, owned by Altria Group, was made on March 28, 2008.

Altria Group Subsidiaries as of September 30, 2011

Altria Group's wholly owned subsidiaries include Philip Morris USA Inc. Philip Morris USA manufactures and sells cigarettes and smokeless products in the U.S.

Altria Group's UST LLC subsidiary owns, directly and indirectly, a) U.S. Smokeless Tobacco Company LLC and b) Ste. Michelle Wine Estates Ltd. UST LLC manufactures and sells smokeless products and wine.

Altria Group's John Middleton Company manufactures and sells machine made cigars and pipe tobacco.

Altria Group's 4th key subsidiary is Philip Morris Capital Corporation. This subsidiary operates and maintains a portfolio of leveraged and direct finance leases.

Altria Group does retain a 27.1% economic and voting interest in SABMiller plc. This interest is due to Altria's prior ownership of Miller Brewing.

Altria Group authorized a $1 billion share buyback in January 2011. This buyback amounted to the purchase of 37.6 million shares at an average price of $26.62. The buyback was complete as of September 30th, 2011. On October 26th, Altria Group's board of directors approved another $1 billion share buyback. This allocation is good thru the 2012 calendar year. Altria Group's board of directors also approved a 7.9% dividend hike. The quarterly dividend is currently 41 cents per share.

Philip Morris International, Inc. - Post March 28th, 2008 Investors can review the Philip Morris International performance since its separation from Altria Group .

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There are clear trends which are aligned with Philip Morris International's core goal to increase shareholder value. The first action is the regular increase in annual dividends. The second action is the reduction in the share count by an ongoing share buyback plan. Philip Morris International's third core action is to reduce the long term debt on its balance sheet.

Overall Philip Morris International's Stock Performance

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Philip Morris International has returned a total annualized rate of return of 12.4% since March 31st, 2008. This is a significant out performer versus the SP500's --1.8% return over the same time frame. As noted, the table assumes the shareholder does not reinvest dividends.

Current Valuation

Philip Morris International is currently trading at a 14x Price to Earnings (P/E) multiple. The yield is 4.3% on an annual basis. This rate should continue to grow with annual dividend hikes, and a reduction in the share count due to share buybacks.


Every stock has risk. Philip Morris International's risks include a reduction in the number of smokers. This would deflate the demand for cigarette products. In addition, governmental actions could prevent or decrease demand if laws are passed banning cigarettes.

November 21st, 2011 Lawsuit

On November 21st, Philip Morris Asia filed a lawsuit against the Australian government over plain packaging. Plain packaging can reduce the noticeable Philip Morris brand names and potentially reduce cigarette demand. In addition, these type of cases can be expensive and run for periods of years prior to resolution.


The key international competitor to Philip Morris International is British AmericanTobacco plc. (NYSEMKT:BTI) . British American Tobacco plc manufactures, distributes, and sells tobacco products. British American Tobacco plc is an international leader in the sale of cigars, cigarettes, smokeless tobacco, and pipe tobacco products. British American Tobacco plc's key brands include Dunhill, Kent, Lucky Strike, Pall Mall, Viceroy, Kool, Rothmans, Peter Stuyvesant, and Benson & Hedges.

The company operates in the Asia Pacific, North and South America, Europe, Africa, and the Middle East. British American Tobacco plc was founded in 1902 and is headquartered in London, the United Kingdom.

British American Tobacco plc's , in this November presentation, discusses their strengths and business model. It is important to note that the company owns 42% of Reynolds American Inc. (NYSE:RAI).

Reynolds American Incorporated is the second largest producer of cigarettes in the U.S. Reynolds American Incorporated brands include Winston, Camel, Salem, Pall Mall, Kool, Doral, and Vantage. Reynolds American Incorporated's reportable operating segments are RJR Tobacco and American Snuff. The RJR Tobacco segment consists of the primary operations of R. J. Reynolds Tobacco Company.


In an economic malaise, choosing the correct stocks is more important than ever. My goal is to identify stocks that can make money during difficult economic times and also in improving economic times. The U.S. has serious economic issues which tax revenues cannot support on a long term basis. The U.S. unemployment numbers are staggering. One in seven U.S. citizens is on food stamps.

Philip Morris provides a steady dividend. Consumers around the world want to legally smoke cigarettes. Many citizens have witnessed that there isn't a safety net if they lose their job, and lose their home. The Federal Government has to pick and choose what companies or persons to provide money to. If you cannot pay your mortgage or buy food, what safety net is out there to help? Many people have family and a support network. Others do not have this type of support network. This article is targeted towards the latter group.

My friends, my family, and I want to avoid not having a safety net if times deteriorate from present conditions. It's time individual investors act in their best interests and buy stocks that make them money via dividends and capital gains. The cookie cutter approach of index funds, I would argue, doesn't work when Treasury Bond yields are so low and stocks are falling.

Disclosure: I am long PM, MO, BTI.