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High-Yielding Philip Morris Adeptly Navigating Exogenous Shocks

publication date: Apr 25, 2022
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Image Shown: Utilizing a combination of innovation and brand strength, Philip Morris has been able to grow its market share of the tobacco industry in relevant regions in recent quarters. Image Source: Philip Morris – First Quarter of 2022 IR Earnings Presentation. 

There are a lot of reasons to like Philip Morris International as a high-yielding income growth opportunity. Its portfolio includes numerous top selling cigarette brands including Marlboro, L&M, Chesterfield, Parliament, and others. After splitting with Altria Group back in 2008, Philip Morris has the right to sell these cigarette brands in international markets while Altria Group has the right to sell these branded tobacco products in the US market. Philip Morris is a free cash flow generating powerhouse that utilizes its immense pricing power, along with ongoing cost structure improvement initiatives to offset secular declines in cigarette unit volumes to support its financial performance. We appreciate that Philip Morris is transitioning towards sales of alternative tobacco products such as its IQOS heated tobacco unit (‘HTU’) offering to support its longer term growth outlook. We include Philip Morris as an idea in the High Yield Dividend Newsletter portfolio and shares of PM yield a nice ~4.8% as of this writing. Sales of its IQOS products have grown robustly in recent years, and in our view, there is ample room for additional upside potential here. Before covering that upside, let’s first go over the developing legal situation in the US as it concerns marketing its IQOS product.

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