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Philip Morris International: Developing Smokers

14 May 2008 10 Comments

Philip Morris International (PM) is finally free from its parent, Altria (MO). The spin-off is complete and the new PM is off and running. This is one of my three favorite stocks (if you can guess my other two based on previous posts, you win a prize). Let’s take a further look at the company and the stock.

While the U.S. cigarette market has been in decline for years, the international market has excellent growth ahead due to the developing markets. PM, with its strong brands, is better poised than any other company to take advantage of this growth.

Reasons I Like PM

  • If you’ve read anything regarding Buffett’s style, you will know he only invests in companies that can be easily understood. PM definitely falls into that category.
  • Philip Morris projects mid double digit earnings growth
  • Great dividend: $.46 per quarter ($1.84 annual). A payout ratio of 65%. Also, the company has a great history of dividend growth.
  • A $13 billion share re-purchase program (approx 12% of market cap).
  • Almost all of the litigation issues regarding cigarette use are inside the U.S. PM is now free of this burden.
  • I’m very bearish on the long term view of the U.S. dollar. A weak dollar helps the company. Even with a near term bounce in the dollar, the long term outlook is bleak.

Philip Morris International is going to be a holding of mine for a long time. If you have read the previous articles on this site discussing pillar investments, this is currently my top recommendation for your pillar investments. For more information on my definition of pillar investments and a recommended portfolio structure, click here.

As a young investor, you want to build positions in the best companies. Philip Morris International has a proven history of returning value to shareholders. As you build your portfolio, this stock should be at the top of your list of potential stocks to be the pillars of your portfolio.

In the future, I will write an article revealing my trades in MO and PM, and detail the entry points I have made as I have built my position in this stock.

I will be buying more shares when possible.

Do you own Philip Morris Int’l (PM) in your portfolio? What do you like about the company? Are you attempting to add to your position? Join the discussion by adding your comment.

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10 Comments »

  • Chris said:

    I love this company, depsite what they sell. I want to add to my position but I already have 25% of my total portfolio in it and am worried it would be foolish to do more. But i will keep reinvesting those dividends for the compounding interest.

    are you other 2 favorites VE and CHK…what is my prize???

  • kevin duffey said:

    You are 1 for 2. I won’t give it away yet. Let’s see if someone else can figure it out.

    25% is a good chunk. I’d maybe hold out unless a buying opportunity presents itself.

  • dude said:

    “I’m very bearish on the long term view of the U.S. dollar. A weak dollar helps the company. Even with a near term bounce in the dollar, the long term outlook is bleak.”

    That is a very foolish opinion. Ther dollar is rebounding and when the Dems take office it goes way up. I don’t think a stronger dollar hurts PM that much as evidenced by its increase the last couple months as the dollar has gained.
    BAD ADVICE. It is a good thing you don’t trade FOREX!

  • kevin duffey said:

    Sure, the dollar may stablize or even gain w/ a democrat in the office. When i say i’m bearish long term, i mean long term. Our government and Fed have made it clear that a strong currency is not the priority whether Democrats or Republicans are in control.

  • torbjorn rive said:

    Hey,

    I can quite predict your answer, but what are your thoughts on holding large dividend giving stock in tax sheltered accounts? I have several portfolios and my newest is a dividend only RSP (a Canadian term) in which I hold big stock like bank ETFs, GE, and soon PM, for at least 30 years.

    Some say that it’s not that good because you have no choice but to reinvest those dividends (as you can’t take just bits out of an RSP, you have to tax it all out or nothing)…but I think it’s great! The more money you can’t touch and need to reinvest, the better – at least at our age.

    Good site, looking forward to seeing more from you.
    Torbjorn

  • kevin duffey said:

    Many of my holdings are within a Roth IRA. I like not having to pay capital gains taxes!

    Over time, my roth should begin to be more sizable than my regular brokerage account as i lean more towards tax-sheltered and continue to contribute to the roth.