Procter & Gamble (NYSE:PG) and Philip Morris (NYSE:PM) have long been bastions of bountiful dividend income for investors. With the consumer-goods giant and tobacco titan currently yielding 3% and 4.1%, respectively, that remains the case today.

But which of these dividend dynamos is the better buy? Let's find out.

A man writing the word dividends

Image source: Getty Images.

Financial fortitude 

Let's take a look at some key metrics to see how Procter & Gamble and Philip Morris stack up in regards to financial strength.


Procter & Gamble

Philip Morris


$65.2 billion

$27.4 billion

Operating income

$13.9 billion

$10.8 billion

Operating cash flow

$13.4 billion

$8.1 billion

Free cash flow

$9.5 billion

$6.7 billion


$16.0 billion

$7.7 billion


$34.2 billion

$34.0 billion


P&G's revenue dwarfs that of Philip Morris. Its operating income and cash flow are also significantly greater. And while Procter & Gamble and Philip Morris have similar debt levels, P&G has $8 billion more in cash reserves. For these reasons, I give the edge to Procter & Gamble when it comes to financial fortitude.

Advantage: Procter & Gamble.


Philip Morris and P&G have seen their revenues decline at similar rates in recent years. Declining smoking rates, greater restrictions on tobacco products, and a strong U.S. dollar have all dented Philip Morris' sales during this time. P&G, meanwhile, is facing intensifying competition from e-commerce-based rivals. Yet a large portion of its sales decline is due to its brand divestiture program, which is now mostly complete. Moreover, P&G's cost-cutting initiatives have helped it expand its margins, thereby allowing the consumer-goods giant to grow its operating profits despite its lower revenue base.

PG Revenue (TTM) Chart

PG Revenue (TTM) data by YCharts.

However, over the next five years, Wall Street expects Philip Morris to increase its earnings per share at an annualized rate of nearly 10%, fueled by the growth of its reduced-risk products. Procter & Gamble is projected to grow its earnings per share (EPS) by only about 7% annually during this time. Ultimately, it's future growth that matters most to today's investor, so I'll give a slight edge to Philip Morris. 

Advantage: Philip Morris.


No better-buy discussion should take place without a look at valuation. Let's check out some key value metrics for P&G and Philip Morris, including price-to-free-cash-flow and price-to-earnings ratios.


Procter & Gamble

Philip Morris




Forward P/E




These two dividend stars are currently trading at remarkably similar price-to-free-cash-flow and price-to-earnings multiples, so I'll call it a draw in terms of valuation.

Advantage: None.

Additional factors 

With this better-buy analysis all tied up after three rounds, let's look at some additional criteria to help you decide what's best for your portfolio.

Some investors may object to investing in certain industries. So-called "sin stocks" -- such as those in the tobacco, alcohol, and gambling industries -- often fall into this category. If it makes you uncomfortable to invest in a cigarette maker like Philip Morris, then that could help make this better-buy choice an easy decision for you.

Secondly, I should note that Procter & Gamble is currently under pressure from activist investor Nelson Peltz. Peltz recently won a seat on the company's board, and he could push for P&G to break itself up. If this situation makes you uneasy, you may want to stay clear of Procter & Gamble's stock for the time being.

Advantage: You decide.

Ultimately, you'll have to decide which of these factors is more important to you. If you appreciate balance-sheet strength and superior cash flow generation, then Procter & Gamble is the way to go. If strong future growth potential is more important to you, then Philip Morris may be the better choice. Either way, you'll be buying a solid business that should reward you with steadily rising dividend income in the years ahead.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.