It can pay to follow investing legends. Billionaire Stanley Druckenmiller earned a 30% return over 30 years when he ran his hedge fund, and he never had a bad year for his investors. He's clearly one of the best investors out there, so it pays to follow what he buys and sells.
While you shouldn't blindly follow investment legends, they can be a great source of inspiration for potential new stock purchases.
Fortunately for individuals, large mutual funds are required to disclose their purchases and sales and overall portfolio every quarter. Recently, Druckenmiller's family office disclosed a new position in the growing dividend payer. Philip Morris International (NYSE: PM)Although the stock has returned 36% so far this year, Druckenmiller says he remains bullish on the stock.
Should you jump on the dividend growth bandwagon and buy Philip Morris International stock for your portfolio?
Volume growth through new generation products
Philip Morris International is listed as one of the tobacco companies in terminal decline. At the beginning of this year, the company had a dividend yield of 5.5%, which is much higher than the average for large-cap companies. There is a belief that tobacco is not an investment option due to the sharp decline in consumption among smokers.
This narrative began to change in 2024 for Philip Morris International. Why? Because of the undeniable growth of Philip Morris’ next-generation nicotine products. These products are led by burn-free tobacco and Zyn nicotine pouches. There are over 36 million active users of these smokeless nicotine products, which has helped Philip Morris stabilize and begin to increase shipment volumes in recent quarters. Last quarter, gross profit from smokeless products grew 22.2% year-over-year, leading to consolidated operating profit growing 12.5%.
It's no wonder investors like Druckenmiller are excited about Philip Morris. The stock was trading with a sky-high dividend yield even though it had returned to revenue and profit growth. That's why the stock has risen so much this year and the dividend yield has dropped to 4.1%, one of its lowest levels in years.
Earnings growth equals dividend growth
In 2024, Philip Morris expects to generate earnings per share (EPS) of $6 or less. This is significant growth from the $5.02 it generated in 2023 and will be an all-time high if met or exceeded. The company is experiencing rapid earnings growth as its next-generation products gain greater operating leverage and begin to contribute more and more to the bottom line.
It's important to track earnings per share (EPS) as it is the lifeblood of Philip Morris' dividend payout each quarter. Recently, Philip Morris announced an increase in its dividend per share to $1.35 per quarter, which equates to an annual payout of $5.40. This figure is still well below the company's guidance of $6 per share for the full year. If Philip Morris can continue to grow its EPS over the next five to ten years, it will have plenty of room to continue increasing its dividend per share further and further.
Stocks are (still) cheap
Philip Morris International's dividend yield has come down as the stock has risen, but the stock still looks cheap at these levels. The company's dividend yield of 4.1% is well above the 10-year US Treasury bond yield of 3.6% and has plenty of room to grow. Over the next five years, there is room for the company's EPS to reach $10. Assuming the dividend per share rises to $9, that's a sky-high forward dividend yield of 7.1% based on the current share price of $126.
Philip Morris International shareholders are in for a lot of income. Its dividend should continue to grow year after year as more people switch from cigarettes to heat-not-burn brands and nicotine pouches. This makes Philip Morris International stock an easy buy for dividend growth investors today.
Should you invest $1,000 in Philip Morris International right now?
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Brett Schäfer has no position in any of the stocks mentioned. The Motley Fool recommends Philip Morris International. The Motley Fool has a Disclosure Policy.
Billionaire Stanley Druckenmiller Just Added This Dividend Growth Stock To His Portfolio Originally published by The Motley Fool
