Recent Buy: Phillip Morris International Inc. (PM)

ID-100426334-300x300 Recent Buy: Phillip Morris International Inc. (PM)I added more shares my portfolio with the purchase of Phillip Morris International Inc. (PM)

15 shares @ $79.32 on 6/1/2018.

This increases my forward 12-month dividend income by $64.20 to a total of $5,754.38

I also updated my portfolio page to reflect the change.

 

 

 

My Thoughts

So this purchase was another unexpected buy from me. I have not bought shares from this company in over three years. I have just been collecting raising dividends in the time frame. Just recently, PM has seen its price drop from around $120 to as low as $77.

The price was under my cost basis, and I thought this is another great opportunity to add to a company that has been great to me. My only concern with this purchase is that the dividend payout ratio is very high at 110%. The good news is that CRFA expects earnings growth of 9% for the next three years. This will lower the payout to a more reasonable level around 85%.

Another concern I have is the high debt level. Operating cash flow well covers this, but they need to start bringing this down.

With all that concerns, the company does something very unexpected at the time of this purchase. Phillip Morris announced a dividend increase of 6.5%. This dividend increase was very much unexpected. They normally announce dividend increases in September. The last two dividend increases have been 2.9% last year and 2% the year before. The company has a 3-year dividend growth average of 2.6% and a 5-year average of 5.8%.

So this 6.5% dividend increase at this time of the year was a very pleasant surprise. This just confirmes the confidence that the management team has going forward.

Based on 2018 projected Earnings Per Share (EPS) of $5.33, this gives a forward PE of 14.9. If we look at 2019 projected earnings of $5.80, we get a PE of 13.7.

The 5-year PE average is 20.10. This signifies that Philip Morris is undervalued at the current price and the reason why I added more shares.

Screen-Shot-2018-06-09-at-7.38.21-PM Recent Buy: Phillip Morris International Inc. (PM)

Source: Fastgraphs.com

 

What do you think of the company? Plan on owning it? or why not?

 

Thanks for reading, and don’t forget to connect with me.

 

Image by Sira Anamwong at FreeDigitalPhotos.net

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Comments

  1. I believe PM and MO to be undervalued from a discounted cash flow basis. I’ve gone overweight both, nice purchase. The smoking rate has been declining for decades, nothing new. I trust management to find ways to keep increasing earnings

  2. FV –

    Definitely has been a debate between Bert and myself – as to – should we start buying PM and MO again? I have a sizable PM position, and was definitely MORE than happy with the UNEXPECTED, LARGE increase from them. Curious on another quarter’s earnings… to see how they are shaking out, so am holding tight for now. However, I think you made a nice purchase, bought on a $40 drop and after a dividend increase announcement. Solid.

    -Lanny

    • Hi Lanny! thanks for visiting! This year earnings and next year earnings are expected to be higher than last years. CFRA is projecting a 9% 3-year earnings growth. All this and the fact it was under my cost basis is the reason why I decided to add more shares. Let’s hope this comes to be true. 🙂

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