Last update on 2024-06-27

Philip Morris (PM) - Dividend Analysis (Final Score: 5/8)

Discover a comprehensive dividend analysis of Philip Morris (PM), scoring 5/8. This report highlights dividend yield, growth, and sustainability for investors.

Short Analysis - Dividend Score: 5

We're running Philip Morris (PM) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Philip Morris (PM) has a strong dividend yield of 5.4634%, which is higher than the industry average and has historically been consistent in this regard. The company's average annual dividend growth rate has been above 5%, indicating stability and appeal for long-term investors. However, the payout ratio has fluctuated significantly, sometimes exceeding 100%, raising concerns about dividend sustainability during adverse financial periods. The dividends are generally well-covered by earnings and free cash flow, though there are fluctuations. Dividends have been stable, with a significant drop just once in the past two decades. PM has not paid dividends for over 25 years but has shown a positive trend in the last 15 years. The stock repurchase strategy has been somewhat inconsistent but reflects a cautious positive indicator for investors. Overall, the dividend policy shows both strengths and areas that warrant caution.

Insights for Value Investors Seeking Stable Income

Given that Philip Morris has a high dividend yield and a history of overall positive dividend growth, it is a promising option for income-focused investors. However, the occasional high payout ratio and inconsistent dividend coverage by earnings and cash flow are points to watch closely. The relative stability and the upward trend in dividends over the past 15 years are good signs, but the lack of a 25-year dividend history and mixed stock repurchase strategy add some risk. Investors should consider these factors and possibly monitor the company's financials closely before making a long-term investment.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

dividend yield

Philip Morris International (PM) has a current dividend yield of 5.4634%, which is significantly higher than the industry average of 4.61%. Over the trailing 20 years, PM's dividend yield has typically been in the range of 3.54% to 6.73%. These values often hover above the industry norm, which hovers around 3.71%-4.88% except for notable exceptions like 2008. This historical consistency showcases PM's commitment to returning value to its shareholders. A higher dividend yield suggests a robust dividend payment relative to its stock price, which is appealing for income-focused investors. The current trend reinforces confidence in PM's strategic payout approach.

Average annual Growth Rate higher than 5% in the last 20 years?

Criterion 1.1 evaluates whether the dividend growth rate exceeds 5% over the last 20 years.

Based on the dividend ratios provided for Philip Morris (PM) from 2003 to 2023, the data shows variability with some negative growth years. An average dividend ratio of 7.17% is favorable and indicates overall positive growth above the 5% threshold. Despite certain periodical dips (e.g., -10.8511% in 2012 and -17.8988% in 2018), the average growth rate being above 5% suggests stability and a general trend of increasing dividends, making this trend good for long-term investors.

Average annual Payout Ratio lower than 65% in the last 20 years?

Analyzing the average payout ratio over an extended period is crucial as it reflects the sustainability of dividend payments.

Philip Morris (PM) has exhibited a significant fluctuation in its payout ratio over the past 20 years. The average payout ratio is approximately 64.92%, which is just below the desired threshold of 65%. However, trends in recent years have shown instances where the payout ratio exceeded 100%, particularly in 2022 at 102.10% and 2016 at 114.43%—indicating periods where dividends paid out surpassed net income. While an average payout ratio below 65% is generally considered good as it suggests dividend sustainability, the numerous instances where the payout ratio significantly exceeded this benchmark raise concerns about the ongoing ability to maintain dividend rates, especially during adverse financial periods. Therefore, the overall trend appears mixed, necessitating close monitoring of future financials to evaluate ongoing sustainability.

Dividends Well Covered by Earnings?

Indicates whether the company's earnings are sufficient to cover its dividend payments

From 2008, Philip Morris began to distribute dividends. The Earnings per Share (EPS) consistently surpassed the Dividend per Share (DPS) until recent years. Over the past 20 years, the EPS ranged from 1.95 to about 5.85, while the DPS ranged from 0 to 5.14. Initially, the payout ratio improved as the EPS grew faster than the DPS until 2013 which shows 0.67 covering rate. The critical peak topped in 2015 with a coverage rate showing 0.91 in concerne with the historical peak on DPS over EPS at 0.910 quitely confirming elevated range of 5.14 nearing limits for dangers. This signifies that the dividends were some periods close, especially around 2016-2020 (0.89-1.00%) to the entirety profit vectors, unless mild upwards ensuring degree of guaranteed high-risk sustenance. Thus, current projections beyond definitive cautious tune near limits necessary.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow refers to whether a company's free cash flow is sufficient to cover the dividends paid out to shareholders. This criterion is vital because if dividends are not well covered by cash flow, it could indicate potential financial trouble or over-leveraging.

In reviewing the Free Cash Flow and Dividend Payout amounts for Philip Morris (PM) from 2003 to 2023, we observe a fluctuating ratio of dividends paid relative to free cash flow, ranging initially from 0.5 to 1.74. The trend showcases periods where dividends were less secure (e.g., 2010–2011: around 0.5), suggesting caution; but also times where dividends were well covered (e.g., 2003 and 2023: above 1.0). This inconsistent coverage could pose risks, although recent years indicate a more stable and healthier coverage (e.g., around 0.8 in 2022, and a coverage of above 1.0 in 2023). Generally, maintaining a coverage ratio above 1.0 is preferable, enhancing investor confidence in dividend sustainability. The recent increasing trend in free cash flow in tandem with steady dividend payouts indicates improved financial resilience and foresight by the management.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Examining the dividend history of Philip Morris (PM) over the past 20 years reveals that there has been a significant drop in 2017 compared to 2016. Specifically, the dividend per share decreased from $5.14 in 2016 to $4.22 in 2017, which represents a drop of approximately 17.9%. This decline does not meet the 20% drop threshold mentioned; however, it is very close and could be a red flag for income-seeking investors who prioritize stability and predictability in dividends. Moreover, since dividend stability is an essential factor for these investors, any substantial dip might undermine their confidence in the company's ability to provide reliable income, even if it doesn't exceed the strict 20% drop criterion. Overall, while the trend does show consistent growth or stable payouts in most years, this near-20% drop in 2017 should be carefully considered in making long-term investment decisions.

Dividends Paid for Over 25 Years?

Consistence in dividends paid for over 25 years is a strong indicator of a company's financial health and commitment to returning value to shareholders.

Philip Morris (PM) has not paid dividends consistently for over 25 years as the data shows dividends were not paid from 2003 to 2007. However, starting from 2008, the company commenced dividend payments with a dividend per share of $1.54, and this figure has generally trended upward to $5.14 in 2023. While the period of continuous dividend payments is shorter than 25 years, the rising trend in dividend payouts over the last 15 years suggests a positive commitment to shareholder returns and a robust financial performance. Although PM does not meet the 25-year mark, the significant growth in dividends over a shorter period should be seen as advantageous for shareholders.

Reliable Stock Repurchases Over the Past 20 Years?

Explain the criterion for Philip Morris (PM) and why it is important to consider

A company that consistently repurchases its stock is often regarded as confident in its own future earnings potential, and it can be a strategy to return value to shareholders and improve earnings per share (EPS). Tracking repurchase activity provides insights into the company's capital allocation strategy, particularly whether it's using excess cash in ways beneficial to shareholders. Philip Morris's stock repurchases over the past 20 years have been somewhat intermittent. Reliable repurchasing years, such as from 2008 to 2015 and in 2022, indicate periods where the company utilized this approach to return value to shareholders. PM's average repurchase over the last 20 years (approximately -1.3934%, indicating a decrease in share count) illustrates the overall reduction in outstanding shares. Evaluating this trend suggests that PM has leveraged stock buybacks reasonably well to likely improve metrics such as EPS. However, given the inconsistency during some years, it points to a potentially unclear long-term commitment to this capital allocation strategy. This trend might reflect a reaction to market conditions or internal financial strategies rather than a steadfast commitment, making it a mixed but cautiously positive indicator for long-term investors.