Dividend investing is a tried-and-true strategy for generating strong, steady returns in economies both good and bad. But as Corporate America's slew of dividend cuts and suspensions over the past few years has demonstrated, it's not enough simply to buy a high yield. You also need to make sure those payouts are sustainable.

Let's take a look at how Philip Morris (NYSE: PM) stacks up in four critical areas to see if it's a dividend dynamo or a disaster in the making.

1. Yield
First and foremost, dividend investors like a large yield. But if a yield gets too high, it may reflect investors' doubts about the payout's sustainability. If investors had confidence in the stock, they'd be buying it, driving up the share price and shrinking the yield.

Philip Morris yields 4.1%, which is a bit lower than its peer average of 6%.

2. Payout ratio
The payout ratio might be the most important metric for judging dividend sustainability. It compares the amount of money a company pays out in dividends to the amount it generates. A ratio that's too high -- say, greater than 80% of earnings -- indicates that the company may be stretching to make payouts it can't afford.

Philip Morris' payout ratio is 61%, which means the dividend is fairly easily covered by earnings.

3. Balance sheet
The best dividend payers have the financial fortitude to fund growth and respond to whatever the economy and competitors throw at them. The interest coverage ratio indicates whether a company is having trouble meeting its interest payments -- any ratio less than 5 is a warning sign. Meanwhile, the debt-to-equity ratio is a good measure of a company's total debt burden.

Let's examine how Philip Morris stacks up to its peers:

Company

Interest Coverage Ratio

Debt-to-Equity Ratio

Philip Morris

11.5

322%

Altria (NYSE: MO)

5.8

233%

Reynolds (NYSE: RAI)

11.4

63%

Lorillard (NYSE: LO)

19.6

N/A*

Average Tobacco

11.5

233%

Source: Capital IQ, a division of Standard & Poor's. Averages are the median of medium- and large-cap U.S. industry components. 
*Has negative equity.

With a debt-to-equity ratio of 322%, it would appear that Philip Morris is very heavily leveraged. However, that figure doesn't tell the full story because it can cover interest payments fairly easily with current earnings. Those two observations hold true for much of the tobacco industry. This makes sense -- it's an addictive product with a fairly reliable customer base, so as long as earnings remain stable, high leverage may not be as big a problem as it appears.

4. Growth
A large dividend is nice; a large growing dividend is even better. To support a growing dividend, we also want to see earnings growth.

Philip Morris' earnings have grown 11% annually over the past three years, a bit higher than its peers', while its dividend has grown at an average 26% rate over the past two years (the longest period for which data is available due to the company's recent spinoff.)

The Foolish bottom line
Overall, Philip Morris exhibits a fairly clean dividend bill of health. The company's yield might be a bit lower than the peer average, but so is its payout ratio -- perhaps because Philip Morris sees more growth opportunities in which to invest. Continued earnings stability will be important to ensure that the company's debt burden remains sustainable.

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Ilan Moscovitz doesn't own shares of any company mentioned. Philip Morris International is a Motley Fool Global Gains pick. The Fool owns shares of Altria Group, and Philip Morris International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.