Philip Morris: Growth and Income, Without Much Growth
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With a history of growth and a consistent dividend, Philip Morris International (NYSE: PM) has long been considered an ideal growth and income stock. These are companies that tend to have relatively low betas (a measure of volatility relative to the market; Philips’ is a low 0.87), a track record of consistent growth and a solid dividend.
For years, through class action suits and increased taxes, PM has performed. This year alone the stock is up nearly 30%; not bad for an on-again, off-again marketplace. Philip Morris’ performance is particularly impressive when you consider the pressures on operating margins and revenues from continued tax increases around the world. In France nearly 80% of the price of cigarettes comes from government imposed taxes, but does that phase PM? Nah, the increased tax is simply passed onto the consumer and the financials continue to impress.
So, what’s not to like about the growth prospects of PM heading into 2012? Pretty much all of the above. With the run-up this year, Philip Morris is bumping up against 52-week highs and is already one of the more expensive stocks in its industry. Reynolds American (NYSE: RAI) is a bit more expensive with a 17.82 P/E vs. Philips’ 16.09, but boasts a 5.52% dividend. And competitor Lorillard (NYSE: LO) is priced at only 14.71 times earnings, well below the industry average of 15.9.
With all that said, where does that leave Philip Morris in the hearts of investors going forward? The company is, as it often has been, a sound foundation for the conservative portion of a diversified portfolio. With a 4.05% dividend, paid to investors of record on Tuesday, December 20th by the way, PM is a sound, income producing stock. As a sidenote: if your intention is to invest today or tomorrow for the dividend, as some investors do, the payout isn’t until January 10th so shouldn’t impact your 2011 tax liability.
Of course, growth is all relative. PM is probably an $80 stock that should continue to provide investors with solid financial returns. Taxes or no taxes, Philip Morris seems capable of improving margins, revenue and profits almost at will. But at some point, there’s only so much higher it can go. If you’re considering PM, consider it for what it is; a decent paying income stock with limited upside; at least in the foreseeable future.
If buying yield makes sense for your objectives, you could do a lot worse than PM. But a growth and income stock? Probably not for a while.
The investment opinions included are just that, opinions. Tim is not a licensed investment professional, nor has he been for several years. Investing involves risk, as you well know, so consider your decisions wisely.