Philip Morris International Inc. (NYSE:PM) stock is about to trade ex-dividend in 4 days. Investors can purchase shares before the 23rd of September in order to be eligible for this dividend, which will be paid on the 13th of October.
Philip Morris International’s next dividend payment will be US$1.20 per share, on the back of last year when the company paid a total of US$4.68 to shareholders. Based on the last year’s worth of payments, Philip Morris International stock has a trailing yield of around 6.0% on the current share price of $79.47. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it’s growing.
View our latest analysis for Philip Morris International
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Last year Philip Morris International paid out 100% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Philip Morris International generated enough free cash flow to afford its dividend. The company paid out 93% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect – but we’d generally want look more closely here.
Cash is slightly more important than profit from a dividend perspective, but given Philip Morris International’s payments were not well covered by either earnings or cash flow, we are concerned about the sustainability of this dividend.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It’s not encouraging to see that Philip Morris International’s earnings are effectively flat over the past five years. It’s better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Philip Morris International has lifted its dividend by approximately 7.5% a year on average.
Is Philip Morris International worth buying for its dividend? It’s been unable to generate earnings growth, yet is paying out an uncomfortably high percentage of both its profits (100%) and cash flow (93%) as dividends. Bottom line: Philip Morris International has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Although, if you’re still interested in Philip Morris International and want to know more, you’ll find it very useful to know what risks this stock faces. Our analysis shows 3 warning signs for Philip Morris International and you should be aware of them before buying any shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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