The advice of Philip Morris International Inc. (NYSE: PM) announced that it will increase its dividend on October 14 to US $ 1.25. Although the dividend is now higher, the yield is only 4.8%, which is lower than the industry average.
Philip Morris International dividend well covered by earnings
The dividend yield is a bit low, but the sustainability of payments is also an important part of valuing an income security. The last dividend constituted a very large part of the result and also represented 76% of the free cash flows. This indicates that the company is focused more on returning cash to shareholders than growing the business, but it is still within a reasonable range to continue.
Earnings per share are expected to increase 10.0% over the next year. Assuming that the dividend continues according to recent trends, our estimates indicate that the payout ratio could reach 80%. It’s definitely on the upper side, but we wouldn’t necessarily say it’s not sustainable.
Historic NYSE Dividend: PM September 18, 2021
Philip Morris International has a strong balance sheet
The company has been paying a dividend for a long time, and it’s fairly stable, which gives us confidence in the future dividend potential. Since 2011, the first annual payment was US $ 2.56, compared to the most recent annual payment of US $ 5.00. This means that he increased his distributions by 6.9% per year during that period. The dividend growth has been quite reliable, so we believe this can provide investors with nice additional income in their portfolio.
Philip Morris International could increase its dividend
Investors who have held shares of the company for the past several years will be pleased with the dividend income they have received. Philip Morris International has impressed us by increasing EPS by 6.3% per year over the past five years. The payout ratio is very high, which could mean that the growth rate will slow down in the future, and this could also affect the dividend.
Our thoughts on the Philip Morris International dividend
Overall, it’s probably not a high-income stock, although the dividend is in the process of being increased. We cannot deny that the payouts have been very stable, but we are a little worried about the very high payout rate. We would probably look elsewhere for an income investment.
Companies with a stable dividend policy are likely to benefit from greater investor interest than those with a more inconsistent approach. Still, there are a host of other factors that investors need to consider, aside from dividend payments, when analyzing a business. Taking the debate a little further, we identified 2 warning signs for Philip Morris International that investors need to be aware of going forward. If you are a dividend investor, you can also view our organized list of high performing dividend stocks.
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