We recently compiled a list of the 10 Best High-Yield Dividend Stocks To Invest In. In this article, we are going to take a look at where Philip Morris International Inc. (NYSE:PM) stands against the other high-yield dividend stocks.
Dividend stocks have been investors’ favorites for a long time now. Over the years, these equities have performed better than the broader market. That said, when it comes to dividend investing, opinions often split down the middle between those seeking high yields and those favoring dividend growth. Though analysts recommend buying stocks with proven tracks of dividend growth, the appeal of high yields is hard to ignore. According to analysts, investors should steer clear of yield traps and focus on companies that consistently increase the value returned to shareholders. However, those advocating yields have plenty to say about the significance of dividend yields.
Also read: 12 Best Fortune 500 Dividend Stocks To Buy Right Now
One such example is a report published by Newton Investment Management. According to the report, high-yield dividend stocks outperformed the broader market during high inflationary periods between 1940 and 2021. The report also revealed that investment portfolios with high-yield dividend stocks outperformed those with low or no dividends in terms of value-weighted performance. High-yield portfolios surpassed low-yield ones by 199 basis points and zero-yield portfolios by 330 basis points. While this result provides useful information, it doesn’t offer details about the market conditions at the time, giving only a broad picture of high-yield stock performance. Analysts have paid close attention to how dividend stocks perform during market volatility, as the need for consistent income becomes more pronounced in such times. As a result, they suggest considering high-yield stocks only if these companies also have a strong history of dividend growth.
Dan Lefkovitz, a strategist for Morningstar Indexes, made the following comment about extremely high yields in the firm’s recent report:
“It’s really critical to be selective when it comes to buying dividend-paying stocks and chasing yield. Looking for the most yield-rich areas of the market can often lead you into troubled areas and dividend traps—companies that have a nice-looking yield that is ultimately unsustainable. You have to screen for dividend durability and reliability going forward.”
That said, high yields aren’t automatically a bad sign. In fact, dividend yield plays an important role when investing in dividend stocks, as it shows how much income an investor can expect relative to the stock’s price. However, to fully benefit from high yields, other factors like the company’s cash flow, payout ratio, and dividend growth must also be considered. If these metrics are strong, high-yield stocks can still be appealing. Some reports have pointed out the long-term advantages of high-yield stocks, noting that as dividend yields increase, returns generally rise, and risk decreases. Hartford Funds conducted research factoring in annualized standard deviation, which measures a portfolio’s return volatility, with a higher standard deviation indicating greater historical risk. The report found that from December 1969 to March 2024, high-dividend portfolios delivered an annualized return of 12.3%, mid-dividend portfolios 10.5%, and low-dividend portfolios 9.7%. The annualized standard deviations for these portfolios were 14.1%, 16%, and 20.8%, respectively.
The ideal situation would be when dividend growth and high yields go hand in hand, as many companies have demonstrated that this is achievable. With that being said, we will now take a look at some of the best dividend stocks with high yields to invest in.
Our Methodology:
For this list, we scanned Insider Monkey’s database of 900 hedge funds as of Q3 2024 and picked dividend stocks that have yields above 4%, as of January 20. The stocks are ranked in ascending order of hedge fund investors having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A man exhaling smoke from a cigarette indicating the use of tobacco products.
Philip Morris International Inc. (NYSE:PM)
Number of Hedge Fund Holders: 75
Dividend Yield as of January 20: 4.44%
Philip Morris International Inc. (NYSE:PM) is an American multinational tobacco company that also offers a wide range of related products. In the third quarter of 2024, the company reported revenues of $9.9 billion, marking an 8.4% increase from the previous year. This exceeded analysts’ expectations by $220 million. The company’s operating income reached $3.7 billion, reflecting an 8.4% year-over-year growth. Philip Morris expressed confidence in its financial stability, projecting around $11 billion in operating cash flow for 2024.
Philip Morris International Inc. (NYSE:PM) has a clear strategy to achieve $20 billion in operating income over the next five years, positioning the company to generate significant value for shareholders. It plans to return most of these earnings through dividends and share buybacks, reflecting its commitment to shareholder-friendly capital allocation. This strong outlook makes it challenging for long-term investors to face losses over a 10-year period, as PMI’s market leadership and earnings potential offer a solid base for both growth and stability. In the past 12 months, the stock has surged by over 31.5%.
On December 12, 2024, Philip Morris International Inc. (NYSE:PM) declared a quarterly dividend of $1.35 per share, which was in line with its previous dividend. Overall, the company has raised its payouts for 15 consecutive years, which makes PM one of the best dividend stocks on our list. The stock offers a dividend yield of 4.44%, as of January 20.
Broyhill Asset Management made the following comment about PM in its Q3 2024 investor letter:
“Shares of Philip Morris International Inc. (NYSE:PM) gained 21% in Q3. Philip Morris was by far the largest contributor for the quarter. Our core thesis focuses on the shift in business mix from combustible cigarettes towards reduced risk products as well as the company’s re-entry to the US market with its acquisition of Swedish Match. This year, Zyn has become wildly popular. So much so that the company can barely keep it in stock, even as it expands production. We recently discussed how youth usage of these products, a common critique of the company, remains under 2%, even as its overall popularity drives higher volume.”
The number of hedge funds tracked by Insider Monkey owning stakes in Philip Morris International Inc. (NYSE:PM) jumped to 75 in Q3 2024, from 70 a quarter earlier. These stakes have a total value of more than $12.2 billion.
Overall PM ranks 2nd on our list of the best high-yield dividend stocks to invest in. While we acknowledge the potential for PM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.