The lack of consensus over what the market wants to do has resulted in a trading range for the past ...
Philip Morris: Dividend Dynamo
10/27/2014 7:00 am EST
I love dividends. My favorites are “dividend dynamos”—that is, companies that increase their dividends year in, year out, no matter what—observes Chris Versace, editor of PowerTrend Profits.
One company that announced a dividend increase recently was Philip Morris International (PM), which sells branded cigarettes and tobacco products outside the United States.
Those branded products include Marlboro, the world’s number one selling brand, and L&M, the third-most-popular brand, as well as Bond Street, Parliament, Philip Morris, Chesterfield, and Lark.
Overall, PM has seven of the top 15 international brands in the world, with the exception of the People’s Republic of China.
Granted, PM’s dividend increased only 6.4%, but that move takes the dividend to $1 per share per quarter, up from the prior $0.94 per share. The annual dividend payout, meanwhile, now stands at 4.77%.
Thus, during the 2011-to-2013 period, Phillip Morris shares bottomed at a 4.5% dividend yield on average and peaked at 3.7%.
In other words, the current 4.7% dividend yield suggests the shares are near bottoming. Applying those dividend yield averages to the new annualized $4 dividend implies upside potential to $108, with downside to $88.
What makes this situation even more interesting is that PM shares are trading at $84.51, several dollars below the implied downside value.
While there is some concern about the timing of the Federal Reserve’s interest rate hike, I see the current global economic slowdown giving the Fed far more cover to hold off raising rates until 3Q 2015.
That same economic slowdown which is impacting the overall stock market makes Philip Morris International’s products a guilty pleasure and one that consumers will buy no matter how the economy grows.
Guilty pleasure stocks are safe havens in slowing economies. Recent data and the stock market selloff suggest investors are heading for safe haven investments.
Dividend Dynamo companies, like PM, tend to move upward in a step-like way as they increase their dividends. I see that happening with Philip Morris International shares. PM shares are a buy at the current price.
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