Dividend stocks can be a great way for investors to generate passive income. The key is to make sure a company can generate enough cash flow to cover its dividend and ideally raise it. Philip Morris International, taken public in 2008, has made significant strides in focusing on smoke-free products such as ZYN and iQOS.
In the first quarter of the year, Philip Morris grew its earnings per share by 25%, while net revenue was up 6%. Management expects full-year adjusted EPS to surge over 50% on organic net revenue growth of 6% to 8%. Philip Morris has been a strong dividend payer since going public in 2008 and has increased its annual dividend every year at a roughly 7% compound annual rate.
Dividends paid in the first quarter amounted to about 78% of earnings, and the company’s free cash flow yield of 5.7% is comfortably above its 3.3% dividend yield. Realty Income lives up to its name by providing consistent monthly payouts.
Top dividend generators for investors
As a real estate investment trust (REIT), the company must pay at least 90% of its taxable income in dividends to shareholders, which explains its superb 5.9% dividend yield as of this writing. Realty Income’s core business is as a triple net lease operator, meaning it rents out properties to businesses that are responsible for other expenses like property tax, insurance, and maintenance. It operates over 15,600 properties across the U.S., the United Kingdom, and six other countries in Europe.
Realty Income has a strong history of excellent dividend performance, having paid 658 consecutive monthly dividends and increased its dividend for 110 consecutive quarters. The dividend has seen a 4.3% compound annual growth rate since 1994. Because of the unique corporate structure that REITs operate under, a good way to measure the sustainability of the dividend is to look at adjusted funds from operations (AFFO).
In the first quarter, Realty Income paid $0.796 per share in dividends while generating $1.06 in AFFO per share, meaning quarterly dividends currently equate to about 75% of AFFO. Investors looking for stable, high-yielding dividend stocks may find both Philip Morris International and Realty Income compelling options for their portfolios.