What Is Philip Morris's Dividend Increase Telling You About Earnings?

Sep.13.12 | About: Philip Morris (PM)

Right on time, Philip Morris (NYSE:PM) raised its dividend by 10.4% to 85 cents a quarter, a tad over my predicted 84 cents. A nice gift for shareholders 3 months before Christmas.

That didn't stop the miserable action in the stock. Philip Morris - along with the rest of the tobacco cohort - tanked, dropping 1.9%. Ouch! Lorillard (NYSE:LO) got positively crushed, down over 4%; Altria (NYSE:MO) plummeted 1.9%.

I picked up some Philip Morris on the ridiculous dip, figuring a 3.9% dividend for this best of breed tobacco couldn't be bad.

And, in case you were wondering, tobacco cratered on no news. Domestic and international, one and all.

The dividend bump screams: Things are smoking at Philip Morris. After all, you don't jump the dividend like that unless you're cranking.

Remember: Philip Morris uses a 65% payout for its dividends. Philip Morris is telling you the estimated $5.18 2012 earnings are too low. Raise that to $5.23 and you'll be more in line with what Philip Morris is really thinking.

And while you're at it, you might purchase some Philip Morris. The plumper dividend indicates a fatter bottom line. Philip Morris wasn't the only one to hand out a present today. The market just gifted investors a sweet entry point to buy the stock.

Disclosure: I am long PM. 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.

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