Dividend hikes are common for companies with healthy financial positions driven by solid operations. This seems to be the case for
Philip Morris International Inc. ( PM Quick Quote PM - Free Report) , which is committed to enhancing shareholders’ returns. The tobacco giant announced a quarterly dividend increase of 1.6%, taking it from $1.25 per share to $1.27. The raised dividend is payable on Oct 12, 2022 to shareholders of record as of Sep 28. This takes the company’s annualized dividend rate to $5.08 per share. The company has a dividend payout of 83.8%, a dividend yield of 5.3% and a free cash flow yield of about 8%. With an annual free cash flow return on investment of almost 72%, significantly ahead of the industry’s almost 15.5%, the dividend payout is likely to be sustainable. Philip Morris’ dividend hike reflects the company’s confidence in its growth potential. On its second-quarter earnings call, management projected operating cash flow of nearly $10.5 billion for 2022, with capital expenditure likely to be around $1 billion. What’s Working Well for Philip Morris?
The company has long been benefiting from its strong pricing power. Though higher pricing might lead to a possible decline in cigarette consumption, it is seen that smokers tend to absorb price increases due to the addictive quality of cigarettes.
Higher pricing variance was an upside to the company’s performance across most regions during the second quarter of 2022. During the quarter, both the top and bottom lines improved year over year and beat the respective Zacks Consensus Estimate. Proforma pricing for combustible products rose 3.5% and nearly 5%, excluding Indonesia. Philip Morris is also gaining from strength in reduced risk products (RRPs). The company is progressing well with its business transformation, with smoke-free products generating more than 30% of its net revenues in the second quarter of 2022. IQOS devices reflected almost 5% of proforma first-half RRP net revenues. PM is well-placed toward becoming a majority smoke-free company by 2025. In the second quarter of 2022, revenues from RRPs jumped 8.2% to $2,462 million. In the quarter, the company witnessed continued strength in IQOS performance, with solid Q2 proforma user growth of more than 1.1 million. This reflects a sequential acceleration from the first quarter as device limitations and COVID-19 restrictions are easing. IQOS ILUMA generated solid results across Japan, Switzerland and Spain. Management expects solid IQOS growth in the third quarter. Wrapping Up
This Zacks Rank #3 (Hold) company appears to be well-placed for growth and is likely to retain its practice of rewarding shareholders.
For 2022, PM expects proforma adjusted net revenues to increase by nearly 6-8% on an organic basis. Proforma adjusted EPS, excluding currency impacts, is expected to increase 10-12% to the $6.09-$6.20 range in 2022. For the third quarter of 2022, management expects proforma net revenue growth in the mid-single digits on an organic basis. Consumer Staple Stocks Worth a Look
Some better-ranked stocks from the sector are
The Chef's Warehouse ( CHEF Quick Quote CHEF - Free Report) , Lancaster Colony ( LANC Quick Quote LANC - Free Report) and J. M. Smucker ( SJM Quick Quote SJM - Free Report) . Chef’s Warehouse, a distributor of specialty food products in the United States, currently sports a Zacks Rank #1 (Strong Buy). CHEF has a trailing four-quarter earnings surprise of 355.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here. The Zacks Consensus Estimate for Chef’s Warehouse’s current financial-year sales suggests growth of 40.7% from the year-ago reported number. Lancaster Colony, which manufactures and markets food products for the retail and foodservice markets, currently sports a Zacks Rank of 1. LANC delivered an earnings surprise of 170% in the last reported quarter. The Zacks Consensus Estimate for Lancaster Colony’s current financial-year sales and EPS suggests growth of 9.6% and 38.3%, respectively, from the corresponding year-ago reported figures. J. M. Smucker, which manufactures and markets branded food and beverage products, carries a Zacks Rank #2 (Buy) at present. J. M. Smucker has a trailing four-quarter earnings surprise of 20.8%, on average. The Zacks Consensus Estimate for SJM’s current financial-year sales suggests growth of 4.4% from the year-ago period’s reported figure.