Nibbling On This Dip – Bought Some PM Today

[Kerim]

So I haven’t been buying too much lately. I’ve been content to sit by and watch the market run up. It may be a psychological mistake, but I am hesitant to buy into strength. As a result I’ve had a little cash building up on the side, and I decided to make a small purchase of 25 shares of PM on this week’s dip. With commission, I got the shares for $87.84 each. I almost went for 50 shares, but though I’d be cautious. I can always grab another 25 shares later if the price falls further.

I’ve never regretted buying a tobacco stock, and am happy to add a bit more of this best in breed international company at these prices. I locked in a yield on these shares of about 3.88 percent. PM’s earnings growth is good, its dividend growth rate has been excellent, and it produces gobs of cash quarter after quarter. They payout ratio is in the low 60s, which I think is very comfortable for a company of this type (compare to MO’s 80 percent payout ratio). Add to the good numbers the fact that they sell the most popular brands of an addictive product all over the globe, and I’m feeling pretty safe with this buy.

I’ve been reading about some concerns with PM’s debt levels, but it doesn’t concern me given the excellent cash flow PM produces. Moreover, I think the additional debt is being used to help fund PM’s consistently aggressive share buyback. Sounds reasonable to me to borrow at 1 percent to retire shares that you would have had to pay a 3.5 to 4 percent dividend on.

(For those of you tuned in to the ticker: yes, it turns out that I should have waited longer in the day -- it closed at $86.63! I plan to hold these shares for many many years, so this doesn't bother me. And like I said above, if it keeps going down, I may pick up even more.)

[TomK]

I was hoping that today would be another big down day for exactly the same reason. Would love to pick up a few bargains. Have AFL, KO, and PG on my shopping list. KO and PG are up big so far today, and AFL just slightly negative. Guess I'll just sit idly by a little longer.

[Kerim]

I'm not really an emoticon kind of guy, but having picked up 25 more shares of PM today at a price of $86.39...

[Donald Money]

I agree with you on this call, Kerim. In the other thread I told bobby he wouldn't go wrong with mcd because they serve a never ending stream of good-tasting stuff to hordes of people. Well I think the boys at pm may have them beat. Their stuff is literally addictive -- talk about a loyal and active consumer base! Tobacco companies are more or less printing money, have huge cash flows to work with, and pm is the best of them all in my opinion. Unlike mo, pm still has some growth opportunity in front of it as it expands around the globe. This is definitely one of my top picks as well. So much going for it.

[Horace Cugle]

Nice buy at $86, I would have been all over it except I own enough, about 7.5%. If it had gotten much cheaper I'd have been forced to buy though.

I got my shares at the spinoff and have added to it three times, $56, $64 and $81. Unless the story changes I'll never sell it.

It seems like the last few years the dividend increases have gone 10% - 20% - 10%.....so maybe we're due for a big one. A raise from $.85 to $1.00 would be a 17.6% raise. Looks like they're supposed to earn $5.57 this year and $6.21 next, certainly possible but I'll be happy with 10%.

[TomK]

Hey Horace --

I just started a proper PM thread over here, but then I saw this post of yours and wanted to reply. I agree that PM is a hold forever stock, and I hope today's earnings "miss" presents a good buying opportunity.

As to the dividend raise, given the earnings announcement and recent run-up in debt, I'd be surprised for a giant raise. I'm guessing they'll raise to 92 cents.