Building an investment portfolio oriented toward established dividend-paying stocks is one way that investors can achieve financial independence. What's financial independence? In this case, it means that an individual's investment income exceeds his or her expenses.

By virtue of its industry-leading $146 billion market capitalization, Philip Morris International (PM 0.61%) is certainly well known to income investors. Here are three reasons to consider adding This blue-chip stock trading at a discount to your portfolio if you're an income-focused investor.

1. Adapting to a changing industry landscape

Since the launch of its Iqos heat-not-burn product in Japan and Italy in 2014, Philip Morris International has been on a mission to provide consumers with alternatives to cigarettes. And if its financial results for the second quarter ended June 30 are any indication, the company's investments over the years to fulfill this objective appear to be paying off.

Philip Morris International's net revenue surged 14.5% higher over the year-ago period to $9 billion in the second quarter. In a day and age where many tobacco companies are struggling to maintain their volumes, the company's volumes are growing: Philip Morris International's total volume rose by 3.3% year over year to 188.4 billion units during the quarter. Thanks to brand power and its presence in some global markets that still have rising volumes, Philip Morris International's cigarette volumes only decreased by 0.4% year over year to 157 billion units for the quarter. This was more than offset by a staggering 26.6% growth rate over the year-ago period in heated tobacco unit volumes to 31.4 billion in the quarter.

Philip Morris International's smoke-free net revenue carries higher prices and profit margins than cigarettes. A growing sales mix of these products (e.g., 35% of first-half 2023 net revenue) explains how the company's net revenue per unit increased by 7% year over year during the second quarter. Along with a bump to the top line from the acquisition of Swedish tobacco company Swedish Match, these factors led to Philip Morris International's double-digit top-line growth rate.

The company generated $1.60 in non-GAAP (adjusted) diluted earnings per share (EPS) for the second quarter, which was an 8.1% year-over-year growth rate. Adjusting for unfavorable foreign currency translation stemming from a strong U.S. dollar, adjusted diluted EPS soared by 16.9% in the quarter. A higher net revenue base and more profitable sales mix are why currency-neutral adjusted diluted EPS growth came in ahead of net revenue growth during the quarter.

As Philip Morris International works to boost its smoke-free net revenue to at least half of its business by 2025, profits should continue to rise. That's why analysts believe that the company's adjusted diluted EPS will compound at 9.1% annually over the next five years. For context, that's better than the tobacco industry average growth consensus of 8.4%.

A person smokes a cigarette at a café.

Image source: Getty Images.

2. The market-trouncing payout is sustainable

Compared to the S&P 500 index's average dividend yield of 1.6%, Philip Morris International's 5.4% yield probably stands out to most income investors. And the quarterly dividend per share isn't just viable at the current rate of $1.27 -- moving forward, it should also steadily advance higher.

That's because aside from Philip Morris International's promising growth prospects, it is expected that the dividend payout ratio will register under 82% in 2023. That payout ratio builds a buffer into its dividend and allows the company to keep enough capital for growth opportunities, debt reduction, and future dividend growth.

3. Tremendous quality at an undervalued valuation

Because the market mostly views Philip Morris International as an income play, climbing interest rates have diminished the appeal of the stock. As the broader market has logged nice gains this year, shares of Philip Morris International have shed 6% so far in 2023. But for patient investors seeking a mix of income and growth, this sell-off could be perceived as a buying opportunity.

The stock's forward price-to-earnings (P/E) ratio of 13.8 is below the tobacco industry average forward P/E ratio of 14.9. If any stock deserves to be trading at a premium to its peers, Philip Morris International is probably in that company. Due to this low valuation, analysts have an average 12-month share price target of $114 for the stock -- nearly 20% upside from the current $95 share price.