Friday, March 6, 2015

Stock Purchase -- Philip Morris (NYSE: PM)

On 03/06/15, I bought 50 shares of Philip Morris (NYSE: PM) at $80.60 per share.  Details are as following:-
 

This is half of my position.  I would like to purchase another 30 - 50 shares at the entry price $78 if market allows me to do so.

I usually do my stock purchase decision based on my own Stock Purchase Criteria. Here is the list for PM.


PM is one of the Dividend Challengers, with 7 consecutive years of higher dividends. It's worthy to note that Philip Morris was spun off from Altria Group Inc. (MO) in 2008, so it's only 7 years since its in-dependency, and PM has been raised dividends every single year thereafter.

S&P has no quality ranking for this company, maybe due to its short history. Analyst's risk assessment for PM is "LOW" with these comments, "Our risk assessment reflects the geographic diversity of the company's operations and end-markets and its participation in a generally stable industry, producing ample free cash flow. Health concerns, excise tax increases, extensive regulation and, to some extent, litigation have limited the growth prospects for the industry, but have also kept barriers to entry high. " Morningstar gave it a generous 4-stars rating.

PM's current dividend yield is 4.96% (based on my purchase price), well passed my 3% dividend yield threshold.  This company has higher payout ratio at 81.50%, though high payout ratio is common in tobacco companies. 10-year Dividend Growth Rate is 12.02%.  Based on its DGR and current yield at around 5%, it would only take around 6 years to achieve 10% annual income return. That's pretty awesome.  PM's Chowder number is high too, at 16.93%.

Here is how PM's EPS, FCF, and dividends looked in past 7 years. Earnings per share was slightly down in year 2014, but overall performance are steady and on track.   Philip Morris surely have plenty of free cash flow to cover annual dividends for each year of last 7 years.


 Morning star gave PM a fair value at $90, S&P 12-month target price is $83, and Yahoo has 12-month target at $82.  Averaging these numbers I get PM's fair value at $85, which is 5% higher than my purchase price.

 Philip Morris' debt to value is unusual because it has negative treasury stock.  This company uses low-interest long-term debt to buyback shares. This is good for shareholders as long as its interest coverage is healthy. Ideally you want the ratio to be over 1.5Philip Morris has interest coverage at 10.10, so it's certainly a no-worry.

About fellow bloggers:-

Dividend mantra rated Philip Morris as the best stock idea for 2015.  He gave a detailed and convincing analysis of this company.
My dividend Pipeline keeps on accumulating shares of PM.  He really got good deal on it.

6 comments:

  1. I'm watching the trend for marijuana legalization. If it goes nationwide, PM will be the place to be.

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    Replies
    1. Wouldn't you want MO then? PM only sells outside the US.

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  2. Dear MU,

    Well done and great company to invest in. I think that you will be soon able to buy new shares as it's dropping below 80$. Wish you successful shopping.

    Cheers, RA50

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    Replies
    1. Hi RA50, thanks for stopping by. Yes, hopefully I'll be able to add some more shares.

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  3. Good work and pls keep updating. I am new to DGI and I am in Canada.

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  4. Hi SpongWen, thanks for the comment.

    ReplyDelete