Procter & Gamble (NYSE:PG) and Philip Morris International (NYSE:PM) are not quite as different as they seem on the surface. Both are multinational corporations with long pedigrees producing in-demand consumer products that typically dominate their respective fields. 

While there are obvious differences in how each company meets the end goals of their customers, there are enough similarities between them that taking a closer look at what Procter & Gamble and Philip Morris offer investors can help us decide whether one is a better stock to buy than the other.

A woman pointing at the word "dividends" written on a piece of glass in front of her

Image source: Getty Images.

Financial heavyweights

One of the main attractions both stocks hold for investors is their dividend payments, which are significant and sustainable over time, so determining whether they'll be able to continue making those payments into the future is a priority.

Both companies generate a lot of sales, with Procter & Gamble generating $68.8 billion over the last 12 months and Philip Morris generating $29.6 billion. Although they've both incurred a lot of debt, their businesses also throw off a lot of free cash flow -- the money that's left over after paying their bills to reinvest in the company or return to shareholders.

Company

Market Cap

Cash

Debt

Free Cash Flow

Procter & Gamble

$314 billion

$9 billion

$30 billion

$13 billion

Philip Morris

$135 billion

$7 billion

$32 billion

$8 billion

Data source: Morningstar. Figures rounded to nearest whole number.

The table shows that Procter & Gamble is in the superior position across all of the metrics, and its financial position has been more stable than Philip Morris' over the past few years. Because of the consumer products company's larger cash position and ability to generate more FCF, it has the edge in this category.

Growth opportunities

P&G and Philip Morris have both had to confront challenges to their business growth that they've only recently been able to reverse. Declining global smoking rates, increased regulation of tobacco products and next-gen devices, and even a strong U.S. dollar have all impeded Philip Morris' sales growth. But the company has the potential to stop the decline in its business with its IQOS heated tobacco device, which is only just now rolling out in the U.S.

P&G, on the other hand, faced intensifying competition from e-commerce-based rivals, such as online outfits Dollar Shave Club and Harry's, which cut into Gillette's dominance in razors, and it was forced to shed underperforming businesses to break out of its lethargy. That, however, has allowed P&G to trim costs, and expanding cost-cutting initiatives have helped it expand its margins.

PG Revenue (TTM) Chart

PG Revenue (TTM) data by YCharts.

Philip Morris seems to have the upper hand on future sales potential, while Procter & Gamble has already proven adept at quickly reversing course and turning in immediately better results. I'd call this one a draw.

Valuation 

How analysts expect these businesses to perform in the future will help us determine whether one is the better buy. Where P&G and Philip Morris have been is important, but where they're heading is more so.

Company

P/E

P/S

P/FCF

Dividend Yield

Procter & Gamble

79.3

4.5

25.0

2.4%

Philip Morris

18.0

4.5

16.0

5.4%

Data source: Yahoo! Finance.

Neither company looks particularly attractive based on the above metrics, though Philip Morris would get the edge as its stock is weighted more toward the discounted level while offering a superior yield.

What's the better buy?

To make a "better buy" decision, you have to weigh which factors are most important for you. Some investors might not want to invest in a "sin stock." Others might think the slow growth offered by a consumer products company is not appealing.

Procter & Gamble seems to be the more financially stable company, though Philip Morris benefits from inelasticity of demand for its products. Customers keep coming back no matter how much it raises prices, and it does offer the potential for somewhat stronger growth prospects from its next-gen products. Both companies are investment stalwarts, but I'm going to give a slight edge to Philip Morris International.