Better Dividend Stock: Philip Morris vs. British American Tobacco
Yahoo! Finance ·
Key points
- PM raised its quarterly dividend by 8.8% to $1.60, marking what the company describes as its 19th raise in as many years, while BTI maintains a higher current yield of 5.6% versus PM's 3.2%.
- Over the 12 months ending Sept. 30, 2026, PM paid out 68% of its $13.60 billion free cash flow, whereas BTI paid 78% of its £6.85 billion free cash flow in the year ending June 30, 2026.
- BTI’s free cash flow declined to £5.79 billion in fiscal 2025 from £9.64 billion in 2024, contributing to a leverage of 2.9x net debt to EBITDA, above PM’s 2.0x, with BTI targeting 2.0x–2.5x by year-end 2026.
- PM reported 2026 Q3 net revenue growth of 5.5% to $11.4 billion, with smoke-free products (IQOS, ZYN, VEEV) comprising more than 40% of revenue, supporting its dividend capacity despite currency-driven adjustments to full-year EPS guidance.
- BTI’s CFO reiterated confidence in achieving more than 95% cash conversion for the year and U.K. dividend of 61.26 pence per share, while also pursuing more than £50 billion of free cash flow from 2024–2030 amid US growth in nicotine pouches and cigarettes.
- valuation metrics show BTI trading around 12x forward earnings vs PM at 23x, implying a cheaper multiple for BTI; however, PM’s stronger balance sheet and longer track record of dividend raises remain advantages if growth slows.
- The analysis suggests BTI is the better current income stock given its higher yield and covered payout, but PM offers greater resilience and potential for dividend growth, depending on how BTI manages leverage and cash conversion going forward.
Summary
Philip Morris International and British American Tobacco present contrasting dividend profiles: PM offers a smaller yield with stronger growth and lower debt, while BTI delivers a higher yield with a larger payout and firmer cash flow pressure. PM’s 8.8% quarterly increase leaves its yield around 3.2% and a payout coverage near 68% of free cash flow, supported by growing revenue from smoke-free products. BTI, despite a 5.6% yield and 78% payout relative to free cash flow, faces higher leverage and a tightening cash-conversion outlook, though management targets above 95% cash conversion and sustained long-term free cash flow. Overall, BTI’s larger near-term income appears more attractive on current cash flow, but PM offers more room to maintain or expand the dividend with less debt and stronger growth. Future consideration hinges on BTI’s ability to reduce leverage and sustain cash conversion, while PM’s ongoing expansion in non-cigarette segments supports continued dividend flexibility.
This summary was written with AI. The full story has every detail.