Consumer Products

Investors Keep Seeing Smoking Dividend Hikes From Big Tobacco

The tobacco industry has a longstanding history of rewarding its shareholders with capital returns. It seems that every year, in good times or in bad, the tobacco giants are able to keep delivering dividend hikes. This is an amazing feat, considering that the industry sells products that are deadly for its customers.

Philip Morris International Inc. (NYSE: PM) has just announced that it is increasing its regular quarterly dividend by 2.6%. The new annualized rate of $4.80 per share is up from a prior annualized rate of $4.68 per share, and the dividend yield will now rise to 5.96% from 5.81%, based on an $80.50 share price.

The quarterly payout of $1.20 per share will be payable on October 13 to holders of record as of September 24. The ex-date will be September 23.

While the tobacco industry’s past has been dominated by smoking tobacco, Philip Morris International claims that it is leading a transformation in the industry. The plan is said to be a smoke-free future that ultimately replaces cigarettes with smoke-free products (to the benefit of adults who would otherwise continue to smoke, society, the company and its shareholders).

Philip Morris International ships a version of its IQOS Platform 1 device and its consumables, which is authorized by the U.S. Food and Drug Administration to Altria Group Inc. (NYSE: MO) for sale in the United States under license. As of June 30, 2020, the company’s own estimate is that approximately 11.2 million adult smokers around the world already have stopped smoking and switched to its “heat-not-burn” product. That IQOS brand is currently available for sale in 57 markets in key cities or nationwide.

At $80.50 a share now, and with a 5.96% yield, Philip Morris has a Refinitiv consensus analyst target price of $87.07. It has a 52-week high of $90.17, and the highest peak was close to $120 back in 2017.

Altria and Philip Morris International used to be one company. The two companies first split apart back in 2008, when Altria was carved out of and spun off from Philip Morris.

Altria already has committed to a dividend hike in late-July, when the company announced earnings and reestablished its 2020 targets. Altria already had 50 years of dividend hikes ahead of that, and the company noted that the dividend hike would be its 55th hike in 51 years.

Altria’s dividend at that time went to $0.86 per common share, and the new annualized dividend rate of
$3.44 per share represented a 2.4% increase in its payout. Even back in April, during the dog days of the pandemic, Altria announced that the company is still aiming at a payout ratio of about 80% of its adjusted earnings per share.

Altria’s $3.44 annualized payout generates a dividend yield of 7.83% based on its $43.90 current share price. With a 52-week high of $51.78 and with a $75.00 or so high back in 2017, Altria’s Refinitiv consensus price target is $49.00.

There is no argument about smoking coming with very negative health consequences. Vaping may prove to be far less harmful than combustion cigarettes, but at the end of the day is anyone ever going to claim that vaping is healthy?