The name of the game as an income investor is simple. You must ensure that, along with your upcoming Social Security retirement benefits, your investment income at least matches your anticipated expenses in retirement. It also helps to have a sizable buffer to build in a margin of safety for any unexpected bills that you could incur during retirement (i.e., healthcare).

As an income investor approaches retirement, it's critical to own stocks that pay safe and growing passive income to shareholders.

The global tobacco company, Philip Morris International (PM 0.22%), is a stock that arguably fits these requirements. Let's dig into Philip Morris International's fundamentals and valuation to better understand the case for buying and holding the stock.

Heated tobacco units are driving growth

With 150 million consumers in 180 countries, Philip Morris International is the largest tobacco company in the world. The company's Marlboro brand is the top-selling nicotine brand on the planet. 

And because Philip Morris International has always been future-focused, the company introduced the second best-selling nicotine brand behind Marlboro, Iqos, in 2014. Iqos is a heat-not-burn nicotine product, which is thought to release fewer harmful chemicals than combustible cigarettes. 

Philip Morris International posted $7.2 billion in adjusted net revenue during its third quarter ended Sept. 30, which was 3% lower than the year-ago period. Adjusted net revenue accounts for the net revenue that was lost due to the temporary withdrawal from Ukraine and the permanent suspension of operations in Russia in response to the latter's invasion of the former.

But considering the $790 million in unfavorable foreign currency exchanges that were the result of a stronger U.S. dollar than the prior-year quarter, adjusted net revenue was actually up 6.9% for the quarter. 

Factoring out year-ago period results in Ukraine and Russia, Philip Morris International's pro forma volume edged 2.3% higher to 169 billion units sold in the quarter. Cigarette volumes experienced a 0.2% drop in volume to 146.6 billion units. This was easily made up by a 21.9% growth rate in heated tobacco units' (e.g., Iqos) volume to 22.4 billion. Along with the higher average selling price of Iqos compared to cigarettes, this explains the adjusted net revenue growth, excluding currency. 

Philip Morris International posted $1.56 in currency-neutral non-GAAP (adjusted) diluted earnings per share (EPS) during the quarter, which was an 8.3% year-over-year growth rate. Iqos is in just 70 of the 180 markets in which Philip Morris International as a whole sells its products. That's why I believe the company can further grow the share of net revenue from smoke-free products from 30.1% year to date to the majority of its net revenue in just a few more years.

Analysts expect that this will lead to 2.8% adjusted diluted EPS growth annually compared to its 2021 adjusted diluted EPS base for the next five years. And given Philip Morris International's tendency to beat analyst estimates, growth will likely be even higher for the tobacco giant. 

A person smokes a cigarette.

Image source: Getty Images.

A whopping dividend with long-term upside

Philip Morris International boasts a 5.5% dividend yield, which is exponentially more than the S&P 500 index's 1.7% yield. And digging deeper, this dividend is fairly reliable as well. 

At first glance, Philip Morris International's projected dividend payout ratio of 94.5% for 2022 doesn't seem very dependable. But the company's withdrawal from Russia and unfavorable foreign currency translation skews this payout ratio higher. The U.S. dollar's hot streak will eventually come to an end, which will boost earnings. And Philip Morris International will adapt to its post-Russia future as well. 

If this were just about any other industry, a payout ratio in the mid-90% range would be cause for concern. Fortunately, the tobacco industry requires minimal capital expenditure to maintain operations. However, dividend growth will likely be in the low-single-digits for the foreseeable future to bring the payout ratio down to be more in line with its pre-2022 levels.

The valuation is a bargain

Philip Morris International appears to be a quality company. And the stock itself is attractively valued too.

Philip Morris International's forward price-to-earnings (P/E) ratio of 16.8 is a bit below the tobacco industry average forward P/E ratio of 17.7. This makes the stock a compelling play for income investors.