Top picks 2012: Philip Morris International

With a rising dividend, aggressive buybacks and a growing global market, this cigarette maker shows that where there's smoke there's fire.

By TheStockAdvisors Dec 29, 2011 5:52PM
Image: Man smoking (© Steve Mason/Photodisc Blue/Getty Images)This post is one in a series in which over 50 newsletter advisors share their Top Picks for 2012.

By Paul Tracy, High-Yield International

First things first: I understand not everyone likes investing in cigarette manufacturers. That's fine. However, Philip Morris International (PM) is one of the most solid stocks on the planet, and I think it can serve investors well.

PMI's brands include seven of the world's top 15 names, including Marlboro, the number one cigarette brand.

Philip Morris International is the world's second-largest tobacco company -- behind only China National Tobacco -- and holds almost 16% of the non-U.S. market. 

This company is a spin-off of Altria Group's cigarette business outside U.S. borders. Altria (MO) continues to sell its brands, including Marlboro and Merit, in the United States, but that business is slowly shrinking.

Outside the U.S., it's a different story. For all of 2010, Philip Morris International saw cigarette sales rise 4.1% (thanks to acquisitions), while revenues increased 8.7%.

Some overseas markets offer growth opportunities in the cigarette industry because of their growing populations and looser restrictions on tobacco marketing. 

Estimates are that there will be 1.4 billion smokers globally by 2020, up from 1.3 billion today, even if the percentage of the population that smokes declines 1% annually. 

That dependable business is exactly what you like to see, but it's far from the only reason to like the stock.

I think Philip Morris International is the most shareholder-friendly company I've ever seen. Since 2008 it's raised its dividend 67.4% -- from $0.46 per share every quarter to $0.77. That gives the stock a yield of roughly 4.0%, but that's likely to rise over time. 

Meanwhile, at the end of last year the company repurchased more than 330 million shares (about 16% of all shares outstanding). That's one reason why earnings per share jumped 20% in 2010.

In addition, the company plans a total of $5 billion in share repurchases for all of 2011, which helps support the share price in just about any market. The stock has witnessed a strong year, returning roughly 40%.

With a strong dividend, enormous cash flows, and billions in buybacks, I think Philip Morris International is a good buy for 2012 -- especially on a pullback below $70 per share.

Steven Halpern's offers a free daily review of the favorite stock ideas of the nation's top financial newsletter advisors.
Tags: MOPM


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