Philip Morris – A Dividend Stock To Consider

Earnings, however, have seen a much better growth rate when compared to revenue and net income. Earnings per share has grown 3.3% CAGR annually for the past ten years. And over the past five-year, EPS has a CAGR of 3.7%. These past few years of earning growth are also in line with what I mention on the dividend growth front. 

Last year’s EPS was down from $5.19 per share in 2019 to $5.17 per share for 2020, a modest decrease. Considering the challenging year because of the COVID-19 pandemic, a flat year is pretty good. Also, analysts expect Philip Morris to make $6.10 per share for the fiscal year 2021, which would be a 18% increase compared to 2020.

Something of concerned to me is the challenges and the decline of the cigarette market. There is a big push to get rid of cigarettes because of its addictive nature and resulting health issues. However, with the rise and popularity of smoke-free products as an alternative to smoking, combined products is one of the critical trends in the industry. According to analysts, the global heat-not-burn tobacco products market size was estimated at $16.75 billion in 2020 and expected to reach $19.33 billion in 2021, at a CAGR 15.73% from 2020 to 2026 to reach $40.27 billion by 2026. This will help drive future earnings growth for Philip Morris. The company is also expanding outside of cigarettes and tobacco products and has recently taken a stake in Vectura, the British asthma inhaler company.

Also, the Company has a solid balance sheet. Total debt has been flat to declining for the past several years. Currently, Philip Morris has an S&P credit rating of A, which is investment grade. The Company does have a good debt to equity ratio. However, the Company has a negative debt to equity ratio of (-5.4), which means the Company has an interest rate on its debts that are greater than the return on investment.  But the interest coverage ratio is 16.6X, which is very good. the negative debt to equity ratio is something that I do not like, but not too concerned right now because of the high-quality Company that Philp Morris is.

Source: Portfolio Insight*

Philip Morris Valuation

One of the valuation metrics that I like to look for is the dividend yield compared to the past few years’ histories. I also want to look for a lower P/E based on the past 5-year or 10-year average. Furthermore, I like to use the Dividend Discount Model (DDM). I use a DDM analysis because a business is ultimately equal to the sum of all the future cash flow that that business can provide. 

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Disclosure: Long PM.

Author Bio: My name is Felix, and I am a Dividend Growth Investor who has been investing in dividend growth stocks for the past seven years. I also run a YouTube channel ...

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