Is Altria Group or Philip Morris International the Better Tobacco Stock?

Altria Group and Philip Morris International split up six years ago. Both have fared well since the spinoff, but which is the better buy today?

Apr 7, 2014 at 5:03PM

Six years ago last week, Altria Group (NYSE:MO) and Philip Morris International (NYSE:PM) began trading as separate public companies. Spinoffs have traditionally fared better than the market, and this one was no different; both stocks have far-outperformed the S&P 500 index over the last six years. Here is a look at which piece of the old company fared better and which is the better buy today.

Reason for the spin
As legal liabilities in the U.S. wound down in the latter half of the last decade, regulatory risk became the primary concern for U.S. tobacco companies. As a result, Altria decided to spin off its enormous international operations to focus on cutting costs and raising margins at home.

In addition, management believed that the combined company received a conglomerate discount and the two companies would receive higher valuations as separately traded stocks. That notion turned out to be true; since the spin, the S&P 500 has returned 66% including dividends, while Altria returned 151% and Philip Morris returned 117%.

PM Total Return Price Chart

Data by YCharts

The stunning outperformance of these defensive stocks -- in a bull market no less -- is a testament to the value-unlocking properties of spinoffs as well as the value-creating abilities of these dividend stocks.

Which is the better buy today?
With high dividends and stable earnings, both stocks look attractive today for long-term investors. Altria yields 5% and Philip Morris yields 4.5% while paying out 81% and 68% of earnings, respectively.

However, for non-dividend-focused investors, Philip Morris appears more attractive than Altria. Philip Morris not only has a lower price-to-earnings ratio, or P/E ratio, than Altria -- 15.6 vs. 16.6 -- it also trades in-line with its historical average P/E ratio; Altria trades above its historical average P/E ratio. The story is the same for the price-to-cash-flow ratio, or P/CF ratio. Philip Morris actually trades at a slight discount to its average P/CF while Altria trades above its average. This means that Altria has to grow its earnings and cash flow at a faster rate than Philip Morris just to meet the market's expectations.

The only major metric upon which Altria looks like a better buy than Philip Morris is the debt-to-assets ratio. Altria's debt is only 33% of its assets, while Philip Morris' debt funds 67% of its assets. A lower debt burden gives Altria more liquidity in times of distress; the risk of Altria needing to raise capital at an inopportune time is much lower than the risk of Philip Morris needing to do so.

However, with both companies generating billions in cash flow each year, the risk of needing to raise capital is small. The real implication of Philip Morris' higher debt load is more subtle. Philip Morris' debt is much higher than its historical average debt load. This means that cash flow that would have otherwise been returned to shareholders will instead be used to reduce debt. This lowers shareholders' returns in a way that is not accounted for in the P/CF ratio.


P/E Ratio (5-Yr Avg)

P/CF Ratio (5-Yr Avg)

Debt/ Assets (5-Yr Avg)


16.6 (15.2)

17.2 (16.9)

33% (29%)

Philip Morris

15.6 (15.7)

13.2 (14.0)

67% (49%)

Source: Morningstar

Without taking debt into consideration, Philip Morris is obviously more attractive than Altria. It trades at a lower P/E ratio and P/CF ratio while offering a similar dividend yield. However, the lower price multiples are likely due to Philip Morris' relatively high debt burden. Cash that otherwise would have gone into shareholders pockets must instead go to creditors. As a result, investors should consider both companies to be close to equally attractive based on historical operating results.

Bottom line
Altria and Philip Morris appear to be equally attractive after six years of market outperformance. With growth opportunities in Asia, contraction in Europe, and uncertainty in the U.S., it is hard to say whether Altria or Philip Morris will grow earnings faster in the next decade. However, the more diversified Philip Morris appears to be the safer bet, all else equal (and, it would seem, all else is equal).

9 rock-solid dividend stocks you can buy today
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Ted Cooper has no position in any stocks mentioned. The Motley Fool owns shares of Philip Morris International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers