In today's video, Fool.com producer Austin Smith compares two popular huge dividend stocks, Altria and Philip Morris. Despite Altria's larger dividend yield, he believes its sister company is a better investment. One reason Altria's yield is so much higher is that the company has a higher payout ratio. If Philip Morris were to match this payout ratio, the companies would be much closer.
But that cash is actually better spent being poured back into Philip Morris' growth at the moment. The company's earnings growth rate is more than twice that of Altria, it achieves a higher return on invested capital, and it's cheaper to free cash flow.
For steady-as-she goes dividend seekers, Philip Morris is the top pick here, but there may be better options out there.
Austin Smith owns shares of Philip Morris International. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.