Philip Morris – Time to Pull the Trigger on This Dividend Stock
It has been just over a year since Altria spun off its Philip Morris International business to form a new company under the ticker PM. Since the spin off Philip Morris has sunk down to $40 per share off from an IPO price of $50 per share. It shouldn’t be long before this stock comes back and comes back big. Here is my analysis:
A perfect business model
No company is safer than that which sells addictive products. The cigarette business model works out perfectly: entice people to smoke your cigarettes and you’ll laugh all the way to the bank on $4-5 packs. Cigarette companies can afford to spend millions of dollars on marketing considering the average pack a day smoker equates to nearly $1600 per year in revenue.
Immune from lawsuit USA
Philip Morris International sells the exact same brands as does their parent Altria however the company includes only sales made outside the US. Altria has been pounded in recent years with lawsuits over the health concerns of cigarettes and now their “light” brands are under fire for deceptive advertising practices. PM has very little risk of lawsuits.
Its a play on a falling dollar
PMI may be doing business overseas but its books are in the United States. Currently the company is losing out on a strong dollar but that should soon be corrected as TARP and stimulus money flow into the economy. The company reports earnings on February 4 and I want to be holding through that day. In a time where earnings are soft, this company will get a pass on relatively weak earnings and fly on strong reports. Buy buy buy.
Emerging markets and the middle class
PMI has exposure to the areas where cigarette smoking is the fastest growing. Think China, India and East Europe where developing middle classes are smoking. None of these areas are pushing for regulations on cigarettes nor dropping the same amount of public money to fight cigarette addiction as is the US. The gravy train is only beginning overseas, its like America’s 1950′s over there.
High dividends and a low stock price
Altria has been known for its high dividends; the stock is one of Wall Streets best performers after reinvesting dividends. PMI is no different, it pays a whopping $2.16 dividend which works out to a 5.2% yield year over year. In a time when CDs are paying 3% this stock looks great just for its income alone.
If dividends don’t strike your fancy, maybe the charts will
The current chart on PM screams buy with support coming in at $39.60 and an angled line pushing the stock up. Moderate resistance is looming at $45 per share but I think the stock will ultimately retest $46 which is a far more important horizontal line. I’m digging these deep in the money options on PM. March options with a strike of $35 per share are currently selling for $6.50 which represents just an $.80 premium over the current stock price. A rally to $44 per share brings a 62.5% return, good enough for me.
