Philip Morris International (NYSE: PM) Stock Still a Good Buy Despite Weak Earnings

NYSE-PMPhilip Morris International Inc. (NYSE: PM) stock dipped slightly in pre-market trading today (Thursday) on slowing third-quarter sales.

In its earnings release before the bell today, the tobacco giant announced a 0.9% drop in revenue from the third quarter last year. It also had a 4.2% drop in earnings per share (EPS).

Despite this sales slump, PM still beat analysts' expectations. The company's $1.38 EPS beat Wall Street's $1.33 estimate. Its $7.9 billion reported revenue figure edged out a $7.6 billion prediction.

Sales fell on lower cigarette shipments to Asia.

A strengthening U.S. dollar also blunted sales growth. Multinational companies like PM face reduced sales when the dollar strengthens because their goods become more expensive abroad.

PM's flagging sales growth has been met with an equally disappointing growth in its stock.

Shares barely budged over the course of the third quarter, trading up only $0.07 to $83.40.

It also hasn't turned in a very impressive 2014 either. As of yesterday's (Wednesday) close, PM stock traded down 0.8% on the year, from $84.23 a share to $83.58.

Despite the anemic returns, PM is still a good long-term stock to buy and can help you generate massive profits.

Here's how...

Philip Morris's Profit Potential (NYSE: PM)

PM stock is currently trading around $83. Analysts at Morningstar value the stock at $90.

There is room for PM's stock to grow, and there is reason to believe that it is currently trading below its actual value.

However, the main allure of PM stock is not its potential for growth.

For PM, it's all in the dividends.

PM is not unlike its parent company, Altria Group Inc. (NYSE: MO), which Money Morning Chief Investment Strategist Keith Fitz-Gerald called a "real gem." In 45 years, MO has hiked dividends 48 times. Savvy investors who reinvested dividends back into the company saw their returns multiplied through long-term compounding.

"That's not only key to building huge fortunes, but it's also one of the single most powerful investment wealth builders of all," Fitz-Gerald said.

Between 1999 and 2012, investors who reinvested dividends into MO would have pocketed 1,000% gains.

PM spun off from MO in 2008 and has since also established a reputation as a dividend machine.

PM is a high-yield dividend stock, offering dividends at a yield higher even than that of MO. PM's current dividend yield is about 4.6%.

The only other comparable stock of note in the tobacco industry is the U.K.'s Imperial Tobacco Group PLC, which has a dividend yield of 4.7%.

PM has grown dividends at an average yearly rate of 12.1%. That outpaces its average yearly EPS growth of about 10% since the spin-off.

And dividends have grown more than twofold in the last six years, from $0.46 a share to $1.00.

Two More Reasons to Buy Philip Morris (NYSE: PM) Stock Now

And PM has two immediate advantages over owning its rival across the Atlantic.

Simply put, it has the brand name recognition.

Excluding the United States and China, PM holds 28% of the global market share and has a market cap of about $130 billion, compared to Imperial's market cap of about $39 billion, according to Morningstar. It also has the most globally recognized cigarette brand, Marlboro, in its portfolio.

And Imperial Tobacco stock could be bracing itself for a massive hit to its bottom line ahead of the U.K. parliamentary elections slated for May 2015.

That's because Labour Party leader Ed Miliband is mulling over an increased tax on tobacco profits in the U.K. as a part of a larger plan to help fund the country's struggling National Healthcare Service.

With about 44% of the market share in the U.K., Imperial Tobacco would see this reflected in its stock price. Morningstar analysts said the tax could eat away at 8% of its value, while PM would be unaffected.

Imperial Tobacco's stock is now largely at the whims of a U.K. electorate, while PM's large global presence will allow it to avoid this headwind.

All while it will continue to deliver consistent dividends to shareholders.

"The effect of big dividends over time is well documented and validated," Fitz-Gerald said. "Scientist Albert Einstein felt so strongly that he reportedly quipped that compounding interest 'may be the most powerful force in the universe.'"

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