Two years ago, I compared Altria (NYSE:MO) to Philip Morris International (NYSE:PM) to see which stock was the better income investment. At the time, I concluded that Altria's focus on the domestic market and its insulation from currency headwinds made it a more dependable dividend play.

Today, Altria's forward yield of 3.3% is slightly lower than PMI's 3.4% yield, but the latter's higher yield doesn't indicate that it's a better overall investment. Let's take a look at six simple reasons that Altria is still the better pick for income investors today.

A woman holding a cigarette.

Image source: Getty Images.

1. A lower payout ratio

The easiest way to see if a dividend is sustainable is to check its payout ratio -- the percentage of a company's earnings dedicated to dividends. If that figure exceeds 100%, then a dividend cut could occur.

Altria spent 32% of its earnings on dividends over the past 12 months, while PMI spent 91%. That big disparity was caused by AB InBev's (NYSE:BUD) acquisition of brewery SABMiller, which Altria owned a 26% stake in, last October. That buyout gave Altria $5.3 billion in cash and a near-10% stake in the new company. Altria's total pre-tax gain of $13.7 billion from the merger gives it plenty of room to repurchase stock and hike its dividend. Moreover, even when you take out that one-time gain, Altria has consistently had lower payout ratios in recent years than Philip Morris.

2. Consistently higher dividend hikes

Both Altria and PMI have consistently raised their dividends annually since parting ways in 2008. PMI's annual dividend hikes outpaced Altria's in the earlier years, but Altria's dividend hikes started outpacing PMI's over the past three:

 

2012

2013

2014

2015

2016

PMI

10.4%

10.6%

6.4%

2%

2%

Altria

7.3%

9.1%

8.3%

7.7%

8.9%

Annual dividend hikes by percentage. Source: Company press releases.

3. No foreign exchange impacts

The reason Altria offered higher dividend hikes was simple. Altria, being based entirely in the U.S., didn't see its revenue and earnings gobbled up by the strong dollar. Instead, it benefited from a robust U.S. economy and lower gas prices -- which lifted spending on discretionary items like cigarettes.

PMI, which does all of its business overseas, saw its growth evaporate when it reported its earnings in U.S. dollars. To make matters worse, its cigarette shipments have been dropping across all of global regions, due to declining smoking rates and macroeconomic pressures.

4. More balanced growth

That difference enables Altria to deliver predictable growth. Wall Street expects the company's revenue to rise 2% this year, as ongoing price hikes offset softer shipments growth. Its earnings -- lifted by buybacks, cost cutting measures, and the accretive benefits of the SABMiller takeover -- are expected to grow 8% this year.

Analysts expect PMI's revenue and earnings to respectively grow 7% and 9% this year, but that growth is highly dependent on the dollar weakening throughout the year. But if the Fed repeatedly raises interest rates this year, the dollar could strengthen and throttle PMI's growth. PMI has also temporarily halted buybacks due to currency fluctuations, which makes its earnings growth much less predictable than Altria's.

5. Lower valuations

Thanks to the SABMiller deal, Altria currently trades at just 10 times earnings -- which is well below PMI's P/E of 27 and the industry average of 18 for tobacco companies. Altria's forward P/E of 23 also remains slightly lower than PMI's forward P/E of 25.

That difference might seem slight, but the cheaper stock is generally the smarter play in today's frothy market.

6. Altria's a likely buyout target

Ever since PMI's competitor British American Tobacco (NYSE:BTI) agreed to acquire Altria's rival Reynolds American (NYSE:RAI) earlier this year, there's been widespread speculation that PMI and Altria would need to recombine to stay competitive.

If that happens, PMI would likely acquire Altria for a premium, instead of the other way around. While this point isn't dividend-related, it's smarter to hold the takeover target instead of the suitor to benefit from a buyout offer.

But should you buy either stock today?

I owned both Altria and PMI before, but I sold both stocks because I didn't like the notion of the tobacco market being an exhaustible one, and I thought that the stocks were getting ahead of their valuations. So I switched both stocks for telecom plays instead.

That being said, Altria and PMI will likely still appeal to investors looking for defensive income plays. So for now, Altria's lower payout ratio, more dependable growth, cheaper valuations, and buyout potential all make it a smarter buy than PMI at current prices.

Leo Sun has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.