The past week was characterized by very slow dividend increase activity. However, it was not slow if you were a shareholder of Phillip Morris International, which manufactures and sells cigarettes and other tobacco products. The company raised its quarterly dividend by 10.40% to 85 cents/share. This marked the fifth consecutive annual dividend increase for this global tobacco conglomerate. Check my recent analysis of the stock.
The average annual dividend increase over the past five years has been 13.20%. In addition, the company spends aggressively on stock buybacks. The number of outstanding shares has been reduced from 2.062 billion in 2008 to 1.701 billion in 2012.Back in June 2012 the company announced a 3 year stock buyback program, worth $18 billion.
Based on expected 2012 earnings of $5.18/share, the forward dividend payout ratio stands at 65%, which is sustainable. The company is also estimated to earn 11% more per share in 2013, which would likely translate into a quarterly dividend payment of 94 cents/share by the end of 2013. The expected EPS in 2013 is double what the EPS was in 2007 of $2.87/share. I find the stock attractively valued at 17.30 times earnings, yielding 3.80% and having a sustainable dividend payout ratio. Since Phillip Morris International is my largest position, I would likely not have the opportunity to add to it for several months. However, I like the long term economics of PMI’s business, and the prospects for earnings growth of around 10%-12%/year for the foreseeable future.
There are a few risks that investors in Phillip Morris International face. The largest challenge includes stricter regulatory environment in most developed countries that PMI operates in. The recent introduction of plain packaging for cigarettes sold in Australia would likely hurt competition, as companies like PMI would have a hard time differentiating their products based on strong brands and quality of products. Luckily, there aren’t any countries that seem likely to embrace a similar approach to Australia at least in the next five years or so. In addition, since PMI operates in so many countries worldwide, chances are that set-backs in one country would be more than offset against gains in other places.
Atlantic Tele-Network, Inc. (ATNI), through its subsidiaries, provides wireless and wire line telecommunications services in North America, Bermuda, and the Caribbean. The company raised its quarterly dividend by 8.70% to 25 cents/share. This marked the 14th consecutive annual dividend increase for this dividend achiever. Atlantic Tele-Network looks attractively valued at 18 times earnings, yields 2.50% and has an adequately covered distribution. I like the fact that the company has managed to boost earnings and distributions over the past decade. I would add the stock to my list for further analysis.
The other company raising distributions included The Kroger Co. (KR), which operates retail food and drug stores, multi-department stores, jewelry stores, and convenience stores throughout the United States. The company raised its quarterly dividend by 30.40% to 15 cents/share. This marked the seventh consecutive annual dividend increase for the company. Yield: 2.50%
Kroger boasts a five year dividend growth rate of 17%/year. After a nearly 18 year hiatus, Kroger started paying dividends in 2006. The company had been a consistent dividend raiser until 1988, when it took out a large loan and issued a large cash dividend to investors in order to fend off potential acquirers. Over the past decade, Kroger has been unable to grow earnings per share, despite repurchasing over a quarter of outstanding shares during the period. Without earnings growth, future dividend growth is limited.
Full Disclosure: Long PM
- Philip Morris International (PM) Dividend Stock Analysis
- My Entry Criteria for Dividend Stocks
- Dividends versus Share Buybacks/Stock repurchases
- Three Companies expecting high dividend growth and returns
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