Billionaire Stanley Druckenmiller just added this dividend growth stock to his portfolio

It can pay to follow investment legends. Billionaire Stanley Druckenmiller made 30% returns for 30 years when he ran his hedge fund and never had a down year for his investors. He is clearly one of the best investors out there, which makes it worth watching what he buys and sells.

While you shouldn’t blindly follow investment legends, it can be a great source of inspiration for potential new stocks to buy.

Fortunately for individuals, large mutual funds are required to disclose their purchases and sales and their overall portfolio each quarter. Druckenmiller’s family office recently unveiled a new position in growing dividend payers Philip Morris International (NYSE: PM). Even though the stock has returned a total of 36% year to date, Druckenmiller indicates that he is still bullish on the stock.

Should you get on the dividend growth bandwagon and buy Philip Morris International stock for your portfolio?

Increasing volumes through new-age products

Philip Morris International is classified as one of the tobacco companies in terminal decline. Earlier this year, the company had a dividend yield of 5.5%, well above the large-cap average. There is a narrative that tobacco is uninvestable because of the steep decline in use by cigarette smokers.

That narrative began to change in 2024 for Philip Morris International. Why? Because of the undeniable rise of Philip Morris’ new-age nicotine products. These products are led by Iqos smokeless tobacco and Zyn nicotine pouches. There are more than 36 million active users of these smokeless nicotine products, which has helped Philip Morris stabilize and begin increasing shipment volumes over the past few quarters. Last quarter, non-smoking gross profit rose 22.2% year-over-year, which led to consolidated operating profit rising 12.5%.

No wonder investors like Druckenmiller are excited about Philip Morris. The stock was trading at a skyrocketing dividend yield, even as it returned to higher and lower growth. That’s why the stock has rallied this year and the dividend yield has fallen to 4.1%, one of the lowest levels in years.

Earnings growth equals dividend growth

In 2024, Philip Morris expects to generate earnings per share (EPS) at or below $6. That’s a significant increase from the $5.02 it generated in 2023 and will be an all-time high if hit or surpassed. The company is seeing rapid earnings growth as its new-age products gain more operational leverage and begin to contribute more to the bottom line.

The story continues

EPS is important to track because it is the vital component of Philip Morris’s dividend payout each quarter. Philip Morris recently declared an increase in its dividend per share to $1.35 per quarter, which is equivalent to an annual payout of $5.40. That’s still well below the company’s guidance of $6 in full-year EPS. If Philip Morris can continue to grow its EPS over the next five to 10 years, it will have plenty of room to keep pushing its dividend higher and higher.

Stock is (still) cheap

Philip Morris International’s dividend yield fell as stocks rose. But the stock still looks cheap at these levels. The company’s dividend yield of 4.1% is well above the 10-year US Treasury yield of 3.6% and has plenty of room to grow. In the next five years, there is room for the company’s EPS to reach $10. Assuming the dividend per share rises to $9, that’s a whopping 7.1% forward dividend yield based on the current share price of $126.

There is plenty of income coming the way of Philip Morris international shareholders. Its dividends should continue to grow year over year as more people switch from cigarettes to smokeless brands and nicotine pouches. That makes Philip Morris International stock an easy buy for dividend growth investors today.

Should you invest $1,000 in Philip Morris International right now?

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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.

Billionaire Stanley Druckenmiller just added this hot dividend growth stock to his portfolio was originally published by The Motley Fool