Dividend Increase | Phillip Morris (PM)

Getting a pay raise while sitting on the couch?  Sign me up!  Thanks Phillip Morris for another dividend increase!

There's an old Chinese proverb that says "the best time to plant a tree was 20 years ago, the next best time is now".  The reason for this is that it takes time for a tree to grow and prosper and for you to start reaping its benefits.  Dividend growth investing is much the same way.  It takes consistent saving and investing as well as time and patience to let the power of dividend growth take hold.

That's why one of my favorite things is when one of the companies I own decides to pay out more in dividends.  You mean I get a pay raise just for owning a small piece of a company?  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  

On September 11th the Board of Directors at Phillip Morris (PM) approved an increase to the quarterly dividend payment.  The dividend was increased from $1.14 up to $1.17 per share.  That's a decent 2.6% increase.  Phillip is a Dividend Contender with 11 consecutive years of dividend increases.  Shares currently yield 6.45% based on the new annualized payout.

The newly increased dividend will be payable on October 11 to shareholders of record as of September 25th.

Since I own 62.61 shares of Phillips Morris in my FI Portfolio, this raise increased my forward 12-month dividends by $7.51.  This is the 7th dividend increase I've received from Phillip Morris since initiating a position in December 2012.  I also own 15.491 shares of Phillip Morris in my Roth IRA and this raise increased my forward dividends for that portfolio by $1.86.

A full screen version of this chart can be found here.

Since Altria and Phillip Morris split in 2008, Phillip Morris has continued on with the dividend growth ways of the tobacco giant.  Dividend growth started off very strong with double digit annual growth the norm; however, starting in 2015 the fastest they've grown the dividend in any year has been just 5.49%.

There's been 9 rolling 3-year periods for Phillip Morris' dividend growth history.  Of those annualized dividend growth has ranged from 3.1% to 39.1% with an average of 11.3% and a median of 8.4%.

Phillip Morris has 7 rolling 5-year periods for its dividend history.  Annualized dividend growth has ranged from 3.7% to 28.4% with an average of 10.6% and a median of 8.8%.

The 1-, 3-, 5- and 10-year rolling dividend growth rates since 2008 can be found in the following chart.  

A full screen version of this chart can be found here.

Based on dividend yield theory, Phillip Morris' current yield of 6.45% is well above the 5-year moving average of 4.68%.  Dividend yield theory suggests a fair value price for Phillip Morris of $100 or ~38% higher than current prices.  Phillip Morris looks like a good candidate for further research and is potentially significantly undervalued.  The current yield is actually in the 99th percentile of all forward yields that Phillip Morris' shares have offered based on daily closes.

For dividend yield theory I consider the fair value range to be the forward dividend yield +/- 10% compared to the 5 year moving average, the under/over value area to be to between 10%-20% deviation from the average and significant over/under value are greater than a 20% deviation from the average.

A full screen version of this chart can be found here.

Since Phillip Morris carries a sizable debt load, enterprise value ratios are a better valuation gauge than market cap, i.e. P/E, ratios.  Enterprise value is equity plus debt less cash and represents the amount that one would have to pay to acquire the entire business before any acquisition premium.

Phillip Morris' EV/EBIT ratio is 12.8x and offers a 7.8% EBIT/EV yield.  The EV/EBITDA ratio is 11.8x and gives a 8.5% EBITDA/EV ratio.  My preferred metric is the EV/FCF which sits at 18.6x or a 5.4% FCF/EV yield.

Wrap Up

This raise increased my forward dividends by $7.51 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 2.92% this raise is like I invested an extra $257 in capital.  Except that I didn't!  One of the companies I own just decided to send more cash my way.  

That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  The beauty of the dividend growth investing strategy is that you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

Thus far in 2019 I've received 36 raises from 32 of the companies in my FI Portfolio.  Combined the dividend increases have boosted my forward 12-month dividends by $254.89.

My FI Portfolio's forward-12 month dividends climbed to $7,439.62.  Including my FolioFirst portfolio's forward dividends of $100.07 brings my total taxable accounts dividends to $7,539.69.  My Roth IRA's forward 12-month dividends increased to $616.78.  My Rollover IRA's forward dividends remain at $2,200.28.  Across all accounts I can expect to receive $10,356.75 in dividends over the next year.

I've also started compiling dividend data on many of the companies that I own or would like to own.  Phillip Morris' can be found here which includes the dividend history (as far back as I can find without spending hours hunting it down), rolling dividend growth rates and dividend yield theory.  To see other companies that I've already gathered the data on you can check out the Dividend Companies page.  Check it out and let me know what you think.

Do you own shares of Phillip Morris?  Were you happy with the 2.6% increase or do you think it was a little light?

Please share your thoughts below.