There are two things I've got to tell you up front. One, I'm not David Letterman, so I hope you're not expecting comedy in this list. Two, this company is not the most popular one around, so if you invest in it, you might get some dirty looks. But investing is about making money, and this one should help you accomplish that. In spades.
The company I have in mind is cigarette maker Philip Morris International. And here are 10 reasons why you should consider owning shares.
No. 10: One product
Unlike conglomerates such as United Technologies
No. 9: Long-term management
The current management team has an average tenure of more than 15 years. CEO Louis Camilleri has been with Philip Morris for 31 years. Such experience gives the company a big leg up.
No. 8: Repeat customers
Many companies, such as McDonald's
No. 7: Market domination
Outside of China and the U.S., Philip Morris controls one-quarter of the world cigarette market, more than any competitor. It has seven of the top 15 brands worldwide, including the leading brand (Marlboro), which has nearly three times the market share of the runner-up. That kind of dominance is rare.
No. 6: Tons of cash flow
Over the past 12 months, Philip Morris has generated $7.1 billion in free cash flow. Over the six years for which its financial information is available, it has averaged more than $5.4 billion annually.
No. 5: High return on equity
Not only does Philip Morris throw off cash, but it's highly profitable; the company has a return on equity (ROE) well in excess of 40%, which it has maintained ever since separating from Altria. Only 31 companies trading on major U.S. exchanges (that aren't financials or energy companies) manage to throw off that much cash and have a ROE greater than 20%. Many of these are familiar names, such as Coca-Cola
No. 4: Hedge against a weak dollar
With 100% of its revenue generated outside of the United States, but its reporting in U.S. dollars, the company's revenue and earnings will look even better when translated, thanks to weakness in the dollar. That protects you as an investor should the dollar continue to decline.
No. 3: In top 100 yielding stocks
Wharton professor Jeremy Siegel has shown that high-yielding, dividend-paying stocks have a significant advantage over the rest of the market. Specifically, he showed in one study that the S&P's 100 highest-yielding stocks outperformed the overall index by three percentage points annually from 1957 to 2003. That may not seem like much, but it's really a big deal. Philip Morris is currently in the top 50 yielding S&P 500 companies, just a bit further down from names like Bristol-Myers Squibb
No. 2: Commitment to pay the dividend
Management has often said that it plans to return value to shareholders, which it primarily does through the dividend. In the year-end earnings conference call, Chief Financial Officer Hermann Waldemer said, "We use our growing cash flow to enhance shareholder returns," just before pointing out that the company raised its dividend last September. Last summer, Waldemer stated that the company is committed to the target payout ratio of 65%. That is, the company is committed to paying investors $0.65 of every dollar it makes in net income.
No. 1: A large, secure dividend
You would think that payout ratio means a hefty dividend, and you'd be right. Right now, the company is yielding 4.5%. While that's not the biggest yield out there, it's probably one of the most secure, because of the company's strong financial position and stable business. According to Standard & Poor's, 804 companies cut their dividend last year, the highest level since it started collecting data in 1955. That included banker Citigroup
While Philip Morris is not a Motley Fool Income Investor newsletter pick, it would not surprise me to see it become one. That's because it fits many of the criteria advisor James Early looks for – namely, a growing dividend, a commitment to pay it, and the financial stability to continue doing that.
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This article was originally published on Nov 21, 2009. It has been updated.
Jim Mueller owns shares of Philip Morris, Coke, and J&J, but no other company mentioned. Coca-Cola is a Motley Fool Inside Value recommendation. Philip Morris is a Global Gains pick. Johnson & Johnson, Coke, and UPS are Income Investor selections. Motley Fool Options has recommended buying calls on Johnson & Johnson. While the Fool's disclosure policy doesn't like smoking cigarettes, it does like smoking dividends.