Philip Morris International Inc. (PM) is the world’s largest publicly traded tobacco company, engaged in the manufacture and marketing of tobacco and related products. Originally founded in 1847, Philip Morris International is now a $141 billion (by market cap) global tobacco colossus.

Philip Morris has increased its dividend for 13 consecutive years. That track record is as long as it could possibly be, as it dates back to the company's initial spin-off from former parent company Altria Group Inc. in 2008. The five-year dividend growth rate of 3.2% won't knock you dead. But it beats inflation. What might get closer to knocking you dead is the stock's 5.3% market-smashing yield.

That's a very high yield in this low-rate environment. It's more than three times higher than the broader market's yield. The payout ratio, at 93.0%, is admittedly high. However, the company has an idiosyncratic accounting structure. Philip Morris's headquarters is in the US. But they don't sell products in the US. This sets them up for somewhat volatile GAAP Earnings Per Share when they convert foreign profits into USD. Nonetheless, the company has always operated with a high payout ratio.

I valued shares using a dividend discount model analysis. I factored in an 8% discount rate (to account for the high yield) and a long-term dividend growth rate of 3%. This dividend growth rate is on the conservative side, in my opinion. It's in line with the five-year dividend growth rate. And the most recent dividend increase, announced in September 2020, came in at about 2.6%. So I'm right in that range here.

However, I really do believe that the business is on the cusp of a stronger tailwind gust than it's had in years. And that could lead to much higher dividend growth than shareholders have become accustomed to.

On the flip side, I do like to err on the side of caution with these long-term forecasts and valuation models. I think this is a very reasonable estimation of the forward-looking growth profile, which should lead to a very reasonable estimate of intrinsic value. The dividend discount model analysis gives me a fair value of $98.88.

Morningstar rates PM as a 4-star stock, with a fair value estimate of $108.00.

CFRA rates PM as a 5-star "STRONG BUY", with a 12-month target price of $100.00.

Dividend Discount Model Analysis: $98.88

Morningstar Fair Value Estimate: $108.00

CFRA 12-Month Target Price: $100.00

FINAL VALUATION: $102.29

I came out on the low end, but we're all in a pretty tight range.

Averaging the three numbers out gives us a final valuation of $102.29, which would indicate the stock is possibly 13% undervalued, making it one of the best stocks to buy now.

Here's the bottom line, guys: Philip Morris International Inc. is a high-margin business that benefits from extremely unique competitive advantages. After a period of languishment, growth is starting to accelerate. With a market-smashing 5.3% yield, more than a decade straight of dividend raises, inflation-beating dividend growth, and the potential that shares are 13% undervalued, this stock could be a perfect fit for dividend growth investors seeking safe income for their portfolios.

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