"Is Philip Morris International Inc. (PM) the Best Performing Dividend Stock to Buy Now?"

In the ever-evolving landscape of the tobacco industry, philip morris international inc. (PM) has emerged as a standout performer, not just in terms of stock price but also as a dividend stock. With a market capitalization of $238.7 billion, PM is a mega-cap stock that has been quietly transforming itself into a growth company, driven by its focus on smoke-free alternatives. But is it the best performing dividend stock to buy now? Let's dive in and find out.



The Smoke-Free Revolution

Philip Morris has strategically shifted its focus towards smoke-free alternatives, such as IQOS and ZYN. This shift is evident in the company's financial performance and market positioning. The smoke-free products segment saw a 9.2% rise in net revenues, now comprising 40% of total net revenues. This indicates a strong demand for these products and a successful transition away from traditional tobacco products. The company's smoke-free business saw organic revenue increase by 9%, driven by the growth of brands like ZYN and IQOS. Zyn, a brand of nicotine pouches, saw volumes surge 46.2% in Q4 to 183.8 million cans, with the company forecasting Zyn volumes to grow between 34% to 41% in 2025. This growth is a significant driver of PM's overall revenue and earnings growth.

Financial Performance and Dividend Sustainability

The company's focus on smoke-free alternatives has led to higher gross margins. Adjusted gross margins for smoke-free products were 490 basis points higher than combustible gross margins in Q4. This margin expansion is crucial for sustaining dividends, as it allows the company to generate more cash from its operations. PM expects to produce operating cash flow of about $11 billion, while spending $1.5 billion on capital expenditures to expand Zyn capacity in the U.S. This strong cash flow generation supports the company's robust quarterly dividend of $1.35, which is good for a forward dividend yield of 3.7%.

Growth vs. Traditional Tobacco Companies

In comparison, traditional tobacco companies may face more challenges in sustaining growth and dividends due to declining cigarette sales and increasing regulatory pressures. PM's shift towards smoke-free alternatives allows it to mitigate these risks and capitalize on growing demand for reduced-risk products. This strategic focus on innovation and market dominance has contributed to PM's recent stock performance and its potential as a dividend stock.

Recent Stock Performance

PM's recent stock performance has been driven by its strong financial results, growth in its smoke-free products segment, and its strategic focus on innovation and market dominance. For instance, on February 6, 2025, PM released its Q4 earnings, reporting net revenues of $9.7 billion, marking a 7.3% increase year-over-year. This strong financial performance has contributed to the stock's recent gains, with shares jumping 11% following the earnings release. Additionally, PM has outperformed its key rival altria group, Inc. (MO), which rose 39.1% over the past 52 weeks and 7.6% in the past six months. This outperformance is a testament to PM's strong financial performance and its ability to generate value for shareholders.

Dividend Potential

PM's recent stock performance and its strong financial results also influence its potential as a dividend stock in the current market environment. The company pays a robust quarterly dividend of $1.35, which is good for a forward dividend yield of 3.7% as of this writing. This dividend yield is attractive in the current market environment, where interest rates are low and investors are seeking income-generating investments. Additionally, PM's strong financial performance and its focus on innovation and market dominance suggest that it will continue to generate cash flow and pay dividends in the future. Therefore, PM's recent stock performance and its strong financial results make it an attractive dividend stock in the current market environment.

Comparison with Other Mega-Cap Stocks

Philip Morris International Inc. (PM) offers a robust quarterly dividend of $1.35, which translates to a forward dividend yield of 3.7% as of the current date. This dividend yield is notably higher than many other mega-cap stocks in the tobacco industry, providing investors with a stable income stream. For instance, PM's key rival, Altria Group, Inc. (MO), has a dividend yield of approximately 6.9% as of the latest data, which is higher than PM's yield. However, PM's dividend yield is still competitive and provides a significant income stream for investors.

PM's growth rate is also impressive, with shares surging 65% over the past 52 weeks, compared to the Dow Jones Industrial Average’s 10.3% rally in the same time frame. This strong performance indicates that PM is not only a stable income provider but also a growth stock. The company's focus on smoke-free alternatives like IQOS and ZYN, which have higher gross margins than traditional cigarettes, contributes to its earnings growth outpacing revenue growth. This is evident from the 12.6% organic growth in gross profits, driven by the higher margins of smoke-free products.

Implications for Investors

For investors seeking stable income, PM's dividend yield and growth rate make it an attractive option. The company's strong financial performance, resilient earnings, and focus on reduced-risk products position it well for long-term growth. Additionally, PM's forward price-to-earnings (P/E) ratio of just over 20 times and a PEG (price/earnings-to-growth ratio) of under 0.4 indicate that the stock is undervalued, providing further upside potential for investors.



Conclusion

In conclusion, Philip Morris International Inc. (PM) is a strong contender for the best performing dividend stock to buy now. Its focus on smoke-free alternatives, strong financial performance, and attractive dividend yield make it a compelling investment option. While there are always risks associated with any investment, PM's strategic focus on innovation and market dominance positions it well for long-term growth. Therefore, investors seeking stable income and growth potential should consider adding PM to their portfolio.