PM is a tough call right now. I generally am a big fan of tobacco stocks, and PM is one of my bigger positions. But earnings are seriously stalled and, as Eric points out, the payout ratio is headed up fast. I'll try to do a deeper dive on this one later today.
UPDATED: I just updated my spreadsheet on PM. Nothing too surprising. I think the biggest worry indeed is the fact that earnings are off a lot this year. I am not sophisticated enough to fully understand, much less predict, how currency fluctuations may impact earnings going forward. But in any case, need to see those start to move in the right direction at some point.
By my math, given a guess as to how Q4 earnings might look, it looks like the payout ratio for 2014 is going to be higher than 80 percent. For perspective, MO explicitly targets a payout ratio of 80 percent. PM has no such target that I am aware of, and more alarming is the rate the the payout ratio has increased. This is of course caused by the combination of the sharp earnings decrease and this year's relatively healthy 9.2 percent dividend raise.
All of that said, I continue to be confident in tobacco companies generally. And PM's 4.6 percent initial yield is hard to ignore. If earnings do not move quickly in the right direction, I imagine that the dividend growth rate is going to fall off sharply and quickly. But 4.6 percent is a pretty high dividend yield for PM, historically, suggesting that it might be a good entry point. You're taking some risk in exchange for that, but long-term, I agree that the company should be just fine.
(11-17-2014, 02:39 PM)Joey Batz Wrote: I'm hearing noise that it's being overbought and that a drop in price is "imminent". Curious as to other people's opinions on it.Though I will pause to add that you can always ignore with confidence such "noise." Nobody nobody nobody knows what the stock price will do in the short term. Period. End of story. (Except maybe an insider, and you want nothing to do with that.) Someone might guess correctly, which makes that person look smart, but even then, they did not "know" what was going to happen in the short term.
UPDATED: I just updated my spreadsheet on PM. Nothing too surprising. I think the biggest worry indeed is the fact that earnings are off a lot this year. I am not sophisticated enough to fully understand, much less predict, how currency fluctuations may impact earnings going forward. But in any case, need to see those start to move in the right direction at some point.
By my math, given a guess as to how Q4 earnings might look, it looks like the payout ratio for 2014 is going to be higher than 80 percent. For perspective, MO explicitly targets a payout ratio of 80 percent. PM has no such target that I am aware of, and more alarming is the rate the the payout ratio has increased. This is of course caused by the combination of the sharp earnings decrease and this year's relatively healthy 9.2 percent dividend raise.
All of that said, I continue to be confident in tobacco companies generally. And PM's 4.6 percent initial yield is hard to ignore. If earnings do not move quickly in the right direction, I imagine that the dividend growth rate is going to fall off sharply and quickly. But 4.6 percent is a pretty high dividend yield for PM, historically, suggesting that it might be a good entry point. You're taking some risk in exchange for that, but long-term, I agree that the company should be just fine.