Which Is A Better Dividend Bet – Altria Or Philip Morris?

Tobacco giants – Altria (NYSE:MO) and Philip Morris International (NYSE:PM) – have been among the top dividend payers in the stock market, and share much of their history together. Until 2008, the two companies were one corporate entity; but, the spin-off of Philip Morris International from Altria eight years ago resulted in the separation of the international tobacco business from the domestic tobacco and wine segments, which remained with Altria. In this article we highlight the performance of the two companies in terms of the dividend paid to its shareholders.

1. Dividend Growth

Since the two companies split in 2008, both have not only paid dividends every year, but also increased them. Altria’s payout was $0.29 per share each quarter at the time of the split, and it now currently pays $0.565. On the other hand, Philip Morris initiated its quarterly dividend at $0.46, which has now reached $1.02. This implies a 120% growth for the latter company. While Altria’s rate of 95% is not poor by any standards, it is the one lagging among the two companies.

2. Dividend Yield

Dividend yield indicates how much a company pays out in dividends each year, relative to its share price. On this metric also Philip Morris comes out on top, with the company’s shareholders receiving higher cash flow for each dollar they invested. However, when the five-year trailing twelve month average is seen, Altria has been the better performer.

3. Dividend Payout Ratio

The dividend payout ratio indicates the amount of money a company returns to its shareholders, as compared to the amount it is retaining to reinvest in growth, pay off its debt, or add to its cash reserves. As both Altria and Philip Morris are mature companies, they both have high payout ratios. Currently, Altria pays ~80% of its earnings as dividends, while Philip Morris expends 95%. This indicates a more easily sustainable dividend for Altria. Philip Morris’ profits have been negatively hampered in recent quarters as a result of the strong dollar, since its sales are from overseas. If the dollar value goes up relative to the currency in which its earnings were made, the company would see a drop in its sales value in dollar terms. In contrast, all of Altria’s earnings are in dollars; hence, it doesn’t have to deal with strengthening in the currency.

Altria, with a greater diversified business, represents a more stable dividend company. This is due to its profit growth from its cost-saving initiatives, as well as growth in its new products. Further, the company’s share price has actually benefited from the Brexit, which has negatively impacted that of Philip Morris. While PM’s dividend is higher, lower growth prospects in the international markets, and a stronger dollar, have been a dampener on its earnings. Moreover, its dividend payout may not be sustainable, given its accelerated debt levels in the past five years.

Have more questions on Altria or Philip Morris? Have a look at the links below:

• What Is The State Of The Illicit Cigarette Market In The European Union?
• Altria’s Stock Still Smoking Hot After The Brexit
• How Will The Brexit Impact Philip Morris?
• What Effect Will The Plain Packaging Ruling In Canada Have On Philip Morris?
• What Effect Will A Tobacco Tax Hike Have In New Zealand?
• How Will Philip Morris Perform In 2016?
• Why Has Philip Morris’ Price Risen ~17% This Year Despite An Earnings Miss?

• What Are Altria’s Strategies For Long-Term Growth?
• How Will Altria Perform In 2016?
• How Will The New FDA Ruling On E-Cigarettes Help Altria?
• What Is The State Of The Vapor Market In The U.S.?

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