Philip Morris (PM) Hikes Dividend to Boost Shareholders Value

Philip Morris International Inc. PM is committed to enhance shareholders’ value, as evident from its recent move to raise dividend from $1.14 per share to $1.17. This represents a hike of 2.6%.

Accordingly, the company’s annualized dividend rate is at $4.68, up from the previous annualized rate of $4.56. Notably, this marks the 12th straight year of dividend hike by Philip Morris since it officially became a public company in 2008. The hiked dividend will be paid out on Oct 11, 2019 to shareholders held in record at the close of business on Sep 25, 2019.

Dividend hike is a prudent strategy used by companies with a stable cash position and solid future prospects. This is because dividend increases not only enhance shareholders’ returns but also raise the market value of the stock. Hence, companies bank on this strategy to bolster investors’ confidence. Other tobacco companies such as Altria Group MO, British American Tobacco BTI and Vector Group VGR also resort to frequent dividend payouts.

Notably, Philip Morris continues to return value to its shareholders despite receding cigarette sales volumes.  Regulatory impositions on cigarette manufacturing and related marketing polices are exerting pressure on the top line. Also, consumers’ growing awareness toward the harmful impacts of nicotine is a deterrent. Such headwinds have dented the stock that fell 13.8% in the past six months compared with the industry’s decline of 12.9%.

Nevertheless, Philip Morris is pioneering the radical shift from harmful tobacco products to reduced risk products (RRPs). In fact, the company’s IQOS, a smokeless cigarette, is one of the leading RRPs in the industry. IQOS users at the end of second-quarter 2019 totaled more than 11 million, marking an important milestone. This along with higher cigarette pricing strategies is likely to remain as upsides for this Zacks Rank #3 (Hold) company.

We note that Altria has been actively expanding in the RRPs space. In August, Philip Morris had announced that it is in talks with Altria to discuss the potentials of an all-stock merger. However, there is no assurance that these discussions will lead to an agreement, as highlighted by the companies. If at all the companies consider a merger, their shared goals pertaining to low-risk tobacco alternatives might receive a boost.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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