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Philip Morris International
Dividend yield: 4.6%
FCF margin: 25.8%
5-year annual dividend growth: 8%
Philip Morris International Inc. holds all the international rights to sell dominant cigarette brands such as Marlboro, and this gives it a wide moat with plenty of pricing power to offset the gradual declines in cigarette volumes over time.
In fact, in the past year, PM was able to increase the price of its products by a very impressive 5%, resulting in constant currency EPS growth of 18%.
Better yet, Philip Morris is finding great success in its smokeless tobacco product, iQOS, in which tobacco is heated but not burned. That should provide PM with solid continued long-term growth potential as global consumers migrate away from cigarettes and towards electronic alternatives.
And with massive economies of scale, and ongoing cost cutting efforts Philip Morris International should be able to maintain its exceptional margins, including operating margins in the low to mid-40% range.
Combined with a low-capital-intensive business model, PM generates exceptional FCF per share that makes the current generous dividend not just highly secure, but likely to keep growing steadily in the years to come.
Philip Morris’ high yield makes it a favorite holding for investors living off dividends in retirement.