There are 1.3 billion smokers in the world, roughly 16% of the planet’s population. And surprisingly, Philip Morris International (NYSE: PM) says it wants to change that.

The tobacco giant claims that it is “leading a transformation in the tobacco industry to create a smoke-free future and ultimately replace cigarettes with smoke-free products.”

The 174-year-old company was split off from Altria Group (NYSE: MO) and sells its products all around the world, except in the United States. Altria sells to the U.S. market.

Not everyone wants to invest in a tobacco company, transformation or not. But the ones who do are no doubt attracted to Philip Morris’ 6% annual dividend yield.

Can the company continue to pay shareholders the $1.20 per share quarterly dividend, or will it be discarded like a spent cigarette butt?

Despite all of the anti-smoking and anti-tobacco campaigns, Philip Morris knows how to turn tobacco into cash.

Cash flow has grown steadily over the years.

In 2021, free cash flow is forecast to decline slightly to $9.16 billion from $9.33 billion. More on that in a minute…

In 2019, Philip Morris International paid shareholders $7.16 billion for a 77% payout ratio. That’s a little higher than I like to see.

Under normal circumstances, I want to see a payout ratio of 75% or lower. During the pandemic, I’ve lowered that threshold to 50% to ensure companies can continue to pay their dividends even if times get tough again.

For 2020, the payout ratio is forecast to have inched higher to 79% – and it is expected to creep higher again to 82% in 2021.

Philip Morris International has raised its dividend for 13 years in a row, which is a solid track record.

The company reports fourth quarter earnings tomorrow morning, so the full-year 2020 results and expectations for 2021 could change depending on the report.

Right now, the risk of a dividend cut is low. But should Philip Morris International see a decline in free cash flow in 2020 and a larger drop than expected in 2021, the risk would increase. For now, the dividend is safe. But keep an eye on the results over the next few quarters.