Tuesday, August 5, 2014

Recent Buy: PM

Aug 5, 2014: Bought 31 shares of PM at $81.29 per share.

Headquartered in New York City, Philip Morris International Inc. (PM) is the leading international tobacco company, with seven of the world's top 15 international brands, including Marlboro, the number one cigarette brand worldwide. PM's products are sold in more than 180 markets.

PM is a Dividend Challenger with a streak of 6 years of dividend increases. It pays quarterly dividends in March, June, September and December. The current dividend is 94¢ per share, so starting yield on cost is 4.63%. PM's 5-year dividend growth rate is a solid 28.4%.

PM has a 5-year Beta averaging 0.9. The stock has performed reasonably well over the past 10 years, out-gaining the S&P 500 by about 17%:


Analysis of PM


My fair value estimate of PM is $90, so I picked up shares at a discount of 10.71%. The following table provides some key statistics, with highlighted values relating directly to my selection criteria.


PM easily meets the requirements of the Chowder Dividend Rule, which requires that the sum of a stock's dividend yield and its 5-year dividend growth rate exceed 12%. For PM, the sum is 32.98%.

PM misses out on the following criterium:
  • Earnings per share (EPS) percentage payout is less than 50 (74.6%)
Based on these statistics, PM earns 5 out of a possible 7 stars: (*******)

The following chart shows PM dividend payments and earnings per share over the last 7 years. PM has grown its dividend steadily and the EPS growth similarly is trending up:


Other ratings for PM


 Zacks Rank  3-Hold
 S&P Capital IQ's Stock Report (*****) Hold
 Thomson Reuters StockReport+   (4/10) Neutral 
 MorningStar Rating (*****)
 The Motley Fool's CAPS Rating  (*****)

Concluding Remarks


PM is the top candidate in the Consumer Staples sector on my August dashboard of dividend growth candidates and the 4th Consumer Staples holding in DivGro.

PM is down about $10 from its June high, which presents an excellent opportunity to buy shares. I particularly like that initial yield on cost of 4.63%. The company is expected to raise its dividend in September and, even though it is expected to be a lighter increase than normal, my yield on cost should nevertheless rise to nearly 5%!

Last quarter, PM was hurt by cost increases and declining volumes, which resulted in earnings and sales declines. The company cut its full-year earnings forecast last month. Although it is going through a tough time right now, PM is positioning itself strategically by developing new products that will be in high demand in the future.

Anti-tobacco government regulations continue to be a threat to PM's market share. PM is facing several risks to its core business due to the declining trend in tobacco sales and tobacco usage.

Despite these negatives, PM is still the leading brand in the tobacco industry with the largest market share. It is expected to generate earnings growth of 8% over the next 5 years, which is higher than its peer group average.

31 shares of PM adds $116.56 of expected dividend income, increasing DivGro's projected annual dividend income to $4,579.06.

PM is the 33rd holding in DivGro.

Thanks for reading! PM is one of the most popular holdings among dividend growth investment bloggers. Are you planning to buy shares, or do you own shares of PM already?

2 comments :

  1. Divgro,
    This is a great buy here. If I have $3,000 in free capital I would purchase DE, AFL, and PM. I think these 3 are great buying opportunities but I am going to have to wait for Mr. Paycheck to arrive next week to dig into one of them.

    ReplyDelete
    Replies
    1. Hi Dividend Mongrel -- thanks for your note!

      Agreed! I think those are all great purchases. Looking at the volatility in the markets, you may get a chance to pick up one or more of them at better prices later this month!

      Good luck!

      Delete

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