Verizon Communications (NYSE:VZ) and Philip Morris International (NYSE:PM) might not seem to have much in common. Verizon is engaged in the high-tech world of wireless communications, while Philip Morris sells a product that people have used for centuries.

But the one area where the two companies do overlap is in how they treat their shareholders. Both have good histories of returning capital to investors through dividends, and shareholders have come to expect attractive dividend yields and long-term payout growth from both companies. Still, Philip Morris and Verizon both have challenges that they have to overcome, and failure could mean reductions in the dividends that investors count on receiving. With that in mind, we'll look at Verizon and Philip Morris more closely, evaluating them to see which is the better buy right now.

13 executives standing behind the Verizon logo.

Image source: Verizon.

Stock performance and valuation

Verizon and Philip Morris have moved in different directions lately. Since August 2017, Verizon is up 10%, but Philip Morris has plunged more than 28%.

Yet even with the way their shares have moved, the two stocks' valuations lead to a surprising conclusion. Even after its declines, Philip Morris still trades at almost 20 times trailing earnings, compared to an earnings multiple of just 7 on a trailing basis for Verizon. When you incorporate near-term earnings estimates, the numbers get a bit closer, but Verizon still maintains an advantage. The telecom giant's forward earnings multiple weighs in at 11, compared to 15 for Philip Morris. Even with its better share performance, Verizon still looks better on valuation terms right now.

Dividends

Historically, both Verizon and Philip Morris have had attractive dividend yields, and that's still the case. In large part because of its share-price swoon, Philip Morris' dividend yield has climbed into the lead, coming in at 5.4%. Verizon still sports a respectable 4.5% yield that makes it the top-yielding stock in the Dow Jones Industrial Average.

Many investors want signs of strong dividend growth over time, and here, Philip Morris also has an advantage. Verizon has generally held itself to raises of just 2% to 4%, including an increase of 2.2% around this time last year. Philip Morris has had similar challenges over the past few years, but before that, it routinely gave double-digit percentage increases. This year's latest dividend boost came in at 6.5%, and many are hopeful that the tobacco giant is back on track and can support high single-digit percentage increases indefinitely into the future. Based both on current yield and future growth, Philip Morris looks like the better bet for dividends.

Growth prospects and risk

Both Verizon and Philip Morris have growth opportunities as well as obstacles to overcome. For Verizon, the light at the end of the tunnel is the adoption of 5G wireless network capabilities, and customers are pleased with what they see coming down the road. Verizon's FiOS internet service has seen impressive customer addition figures, helping to counterbalance the inexorable decline in subscriber counts on the video side. But Verizon is moving beyond its traditional services, looking at business customers who want to take full advantage of the capacities of the Internet of Things to connect their businesses internally and to their own clients. Already, Verizon expects full 5G service to come to major metropolitan areas including Los Angeles and Houston by the end of 2018, and full adoption will come as quickly as possible. Competition across carriers on price has hurt Verizon's bottom line, but investors hope that being a first-mover on quality will help it retain customers and give it some pricing power.

Philip Morris is also trying to rebound. In its most recent quarter, revenue was higher by 12%, with a 25% rise in net income reflecting the positive impact of tax reform laws and other measures designed to improve profitability. Yet even in a reasonably good period, cigarette shipment volume dropped 1.5%, and the company has had to use its full pricing power to keep dollar sales and earnings moving in the right direction. The bigger question facing Philip Morris is whether the iQOS heated tobacco system will prove successful, and there, the company has seen a troubling slowdown in the key Japanese market that could call into question the entire strategy of reduced-risk tobacco products. Nevertheless, Philip Morris is moving forward with a next-generation version of the iQOS platform, and investors need to hope that heated tobacco growth returns in full force in time to get the company back on track.

At this point, Verizon looks stronger than Philip Morris, with the telecom giant's clearer growth prospects and a more attractive valuation outweighing the tobacco king's dividends. Investors need to keep a close eye on both companies, though, as they're each in transitional stages that could see a lot of transformation in a short period of time.

Dan Caplinger 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.