I picked my very first stock stupidly. Having just finished graduate school, I noticed how many highly educated people around me smoked, leading me to decide that a cigarette company would be a safe bet. Since I was most familiar with the Marlboro brand, I bought Philip Morris International (NYSE: PM). I didn't realize until a year later that I had actually meant to purchase Altria (NYSE: MO).

It appears that I lucked out with that first pick. A quick look back at its financials at the time shows a strong company with abundant free cash flow and wide margins. If I were investing as I do today, I would certainly have added it to my watchlist. Ultimately, I think I'd still purchase Philip Morris -- but for different reasons.

The Marlboro Man and his friends
Of the estimated 5.4 trillion cigarettes shipped worldwide last year, Philip Morris International provided about 900 billion, for a roughly 16% share of the global market. Its next largest competitor, British American Tobacco (AMEX: BTI), holds 13%.

A strong balance sheet keeps me interested in a stock, but strong brands can help sway me toward buying it in the first place. In addition to Marlboro, Philip Morris maintains a large portfolio of international and local brands, including seven out of the world's top 15 brands. Marlboro, its largest brand by far, accounted for 297.4 billion cigarettes shipped outside the United States in 2010. L&M, its second largest brand, ranked as the fourth-best-selling international brand (excluding China and the U.S), with a shipment volume of 88.6 billion units. Its seventh-largest brand, Parliament, shipped 35.2 billion units.

Speaking of growing markets
When I set out originally to buy Philip Morris, I hadn't counted on the company growing much. I simply figured that no matter how many anti-smoking campaigns there were, cigarettes would survive as long as teenagers wanted to rebel. However, that thinking ignored the important role of emerging markets in the company's success.

The company posts robust performance in many emerging markets. For example, during the first quarter, Philip Morris's shipment volume in Indonesia rose 7.4% year over year. In Korea, the company's shipment volume increased 4.8% over the same time frame. Overall volume in Asia rose 14%, and revenue increased 24%, to $2.3 billion.

Growth in Asia has helped the company ride out what could have been a rough period. Poor economic conditions and higher taxes on cigarettes in the European Union pushed down first-quarter volume there by 7.3% year over year. Meanwhile, political turmoil in the Middle East and higher taxes in Eastern Europe led to a regional volume decrease of 0.8% there. Still, the company's overall revenue increased 4.5% to $6.8 billion.

The dividend isn't bad, either
While its potential for growth is important, I also like Philip Morris's dividend. When you don't have much cash to invest, dividends can be a useful tool for building your portfolio. Many brokerages will automatically reinvest dividends for free, allowing you to expand your stake in a company, even if you don't have the money to buy more shares.

Unfortunately, this strategy can tempt you to chase the highest yield while ignoring other important factors. For example, Philip Morris's dividend yield seems relatively low for its industry:


Dividend Yield

Payout Ratio

Philip Morris International






Reynolds American (NYSE: RAI)



Lorillard (NYSE: LO)



British American Tobacco



However, since being spun off from Altria in 2008, the company has averaged nearly 10% dividend growth annually. Given that its payout ratio -- the amount of the company's income that gets paid out as dividends -- is relatively low for its industry, I believe that Phillip Morris's dividends have room to keep growing, especially if the company continues to expand as it has in Asia.

What I know now
As I said before, I lucked out when I picked Philip Morris. I didn't know about its massive brand portfolio, international growth potential, or tidy dividend. Now that I do, I'm glad I bought it -- but I think I'll skip the buying-on-a-whim strategy in the future.

How about you? Have you ever picked a good stock for a not-so-good reason? Leave a comment and tell us your story.