Philip Morris International vs. British American Tobacco

If you’re a dividend investor, you’ve probably considered buying tobacco stocks if you don’t already own them.

The tobacco sector has long been a breeding ground for income investors. These stocks tend to generate wide profit margins, have recession-resistant business models, and require relatively little capital or research and development spending, so they return most of their profits to investors.

Two of the largest and best known tobacco stocks in the world are Philip Morris International (NYSE:PM) And British American Tobacco (NYSE:BTI). There are good reasons to include both in any dividend stock portfolio, especially one focused on high-yielding stocks. But if you had to choose between the two, which is the better buy today?

Let’s take a look at the current situation of these two tobacco titans.

Image source: Getty Images.

Business model: Philip Morris International versus British American Tobacco

As tobacco stocks, both companies have similar business models, but the tobacco industry is about more than just cigarettes. The industry is moving beyond combustibles to products like vapes and oral nicotine pouches that claim to be less harmful, and Philip Morris and British American Tobacco (BAT) have emerged as leaders in this transition.

Philip Morris is known for selling Marlboro and other cigarette brands in international markets, while its non-combustion product, IQOS, leads its efforts towards a smoke-free environment. IQOS uses real tobacco rather than the liquid common in e-cigarettes. In 2023, smoke-free products generated 36.5% of the company’s revenue and a higher percentage of its gross profits.

Historically, Philip Morris has operated outside the United States only as part of the company’s spinoff from Altria in 2007. However, it has just purchased the rights to sell IQOS in the United States from Altria for $2.7 billion, indicating that the company is optimistic about the product. Zyn, a branded oral nicotine pouch acquired in the Swedish Match acquisition, has also seen strong growth.

British American Tobacco, which sells its products worldwide, is known for cigarette brands like Camel, Newport and Lucky Strike, some of which it acquired in its merger nearly a decade ago with RJ Reynolds. The company recently wrote down the value of its U.S. cigarette business by $31 billion, showing it likely overpaid for the acquisition and is focused on transitioning to smoke-free products. .

In 2023, organic revenue increased 21%, driven by the growth of vape brand Vuse and oral nicotine pouch Velo, and reached profitability two years ahead of BAT’s initial target. New categories accounted for 12% of its revenue, and this share is expected to continue growing, given its revenue growth rate of 21% in 2023.

Financial data: Philip Morris International vs. British American Tobacco

Philip reported strong growth in the first quarter, with organic revenue up 11% to $8.8 billion and overall shipment volume growth up 3.6% to 180.5 billion units. . Cigarette shipments…

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