Dividendology on $PM (Oct 27, 2026)

Now, we come to a stock that not only recently raised its dividends by nearly 9%, to reach 8.8%, but also performed exceptionally well during the past year. This stock is "Philip Morris".

Take a look at this. Last year, the stock rose by 32%, and since the beginning of the year until now, it has risen by nearly 26%. This means that its performance has more than doubled that of the S&P 500 index so far this year.

But to be fair, much of this performance came as a result of expanding financial multiples. We can see that the stock is trading at levels much higher than its historical average valuation multiples.

The question is, is this justified? Well, we need to take two things into consideration. Once again , let's start by taking a closer look at those dividend payout metrics. Currently, Philip Morris's dividend yield is around 3%.

Now, look at what this return looks like compared to what it has been historically. You can see that it is much less. In fact, this stock has been delivering a return of more than 5% for most of the past decade.

At one point, the yield reached nearly 8% during the 2020 crash. Therefore, consider this a high-yield stock, and a stock that uses most of its free cash flow to pay dividends.

Is this cause for concern? Well , not really if you understand management, capital allocation, and the overall purpose of the business. What do I mean by that? Well, we have to understand that this is a business whose size is not growing at the high rate that most people would like to see.

But, take a look at this. Look at the profitability sheet of Philip Morris. What you will notice is that the profit margins are extremely strong for these businesses. In fact, over the past three to four years, these margins have expanded considerably.

We are seeing an expansion in profit margins . This is a business that possesses pricing power. Because they have pricing power, and because they have pricing power, this allows free cash flow to be more stable than you might initially expect.

The management also stated that its goal is to return the majority of its capital to shareholders in the form of dividends. Therefore, a free cash flow allocation ratio of 80 % is not a mistake at all.

It is perfectly aligned with the management's objectives. However, you will see that it is trading at a much higher valuation compared to its history. We've already seen that on ticker.com.

But compared to the five-year average, it is trading at a price premium of about 30%. Once again, this appears to be one of the companies that investors are turning to for safety at the moment.

Let's use the dividend discount model , since it primarily pays dividends, let's look at it through this model. If we take a closer look, you will see, for reference, that it has historically grown dividend payouts by about 4%.

What we are seeing is that if they continue with this in the future, the value of the stock will be $130, a decrease of approximately 35%. However, what we just saw was a massive increase in dividend payouts of 8.8%.

Can they maintain a higher level of distribution growth in the future? Well, if we look at the earnings estimates, you will find that they are expecting growth of around 11%, 8% and 9% over the next few years, which means that dividend growth should roughly match that .

So, what dividend growth rate is needed to justify the current share price? If we raise the rate to about 5%, we reach $169, and at about 5.5% we are very close to the current share price.

Therefore , the market is pricing in the fact that this stock should be able to increase dividends at a much faster rate than it has in the past few years.