Income investors always look for reliable dividend stocks, and both Philip Morris International (NYSE:PM) and Verizon (NYSE:VZ) have done a great job of paying out much higher yields than the overall market. The tobacco giant and the wireless telecom specialist are large enough that they aren't going to win any prizes for super-fast growth, but they nevertheless have several areas that they're focusing on to drive future gains in revenue and earnings. Right now, though, some investors want to know which one of these two high-yielding favorites is the smarter pick. Let's look more closely at Philip Morris and Verizon, comparing them on a number of metrics to see which one looks more attractive right now.

Image source: Verizon.

Stock performance and valuation

Both Philip Morris and Verizon have been good to shareholders over the past 12 months, but the wireless giant has stronger momentum right now. Verizon has posted a total return of 20% since December 2015, compared to just 8% for Philip Morris over the same period.

Usually, you'd expect that a larger share-price advance would result in a more expensive valuation. Yet Verizon trades at much cheaper earnings multiples than Philip Morris does. When you focus on trailing earnings, Verizon stock has a multiple of less than 16 times its net income over the past 12 months. That compares to nearly 22 times trailing earnings for Philip Morris.

Verizon's value advantage persists when you build in expectations of future earnings. The telecom company has a forward multiple of just over 13, compared to Philip Morris' trading at 19 times forward earnings estimates. On valuation and stock performance, Verizon has a commanding lead over Philip Morris.


The biggest attraction for most investors looking at Philip Morris and Verizon is their dividend yield. Right now, Philip Morris has a slight edge over Verizon, with the cigarette maker paying 4.5% compared to a 4.3% yield for the wireless network provider.

Moreover, both companies have given their investors a consistent track record of higher dividend payments over time. Verizon's track record of annual dividend increases goes back more than a decade, and Philip Morris has boosted its payouts every year since its 2008 IPO. Until recently, Philip Morris had a huge lead over Verizon in terms of the growth rate of its dividend payouts, with double-digit percentage increases being quite common. Lately, though, Philip Morris' dividend growth rate has slowed to just 2%, giving it no advantage over the 2% to 3% increases that Verizon has routinely given its shareholders.

One concern about Philip Morris is that its dividend payout ratio has climbed to precipitous heights. At 98%, the tobacco king has little room for further increases. Meanwhile, Verizon pays out just two-thirds of its earnings in the form of dividends.

For the most part, Verizon and Philip Morris look quite similar in terms of dividends. There's little basis to prefer one over the other on that score.

Growth prospects and risk

Growth has been one area in which both of these companies have had to work hard to find even minimal gains. In its most recent quarter, Philip Morris did produce some sales growth, but it was small at less than 1%, and its $0.01 per-share rise in adjusted earnings reflected the incremental progress that investors have had to accept as the best the company can do right now. Cigarette shipment volume plunged more than 5%, however, and macroeconomic factors continue to weigh on Philip Morris' results. One potential growth highlight is the iQOS heat-not-burn reduced-risk product, which the company hopes will be able to gain FDA approval and receive greater acceptance worldwide. Early results have been strong in Japan, where iQOS reached 3.5% market share during its most recent quarter. But with the U.S. dollar having once again started its climb, earnings for the multinational could remain under pressure for a while longer.

For Verizon, tough industry conditions have hurt its recent performance as well. In its fiscal third quarter, revenue fell almost 7%, leading to a double-digit percentage drop in net income. Even on an adjusted basis, earnings per share fell 3% from year-ago levels, and net additions in postpaid subscriber counts continued to see slower growth than in past quarters. The biggest question that Verizon investors have right now is whether the company will follow through with its proposed acquisition of Yahoo!, which has drawn criticism especially in light of news of email-related hacking. Some believe that Verizon might try to undo the deal or negotiate a discount, but others see the acquisition as far enough along that it will happen in some form. Whether that will produce greater growth or prove to be a quagmire remains to be seen, and investors don't seem to have reached consensus one way or the other.

Right now, Verizon and Philip Morris face tough conditions that are challenging their ability to grow. Given that uncertainty, capturing Verizon's margin of safety in its lower valuation seems like a more prudent option for most investors. Yet if Philip Morris' vision for a transformation in the cigarette industry works out, the company could end up having far greater growth -- and being worth the higher price investors would pay right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.