Want Growing Passive Income? Check out this extremely high-yield dividend stock

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Also with that S&P500Due to the rally in recent weeks, the index is still down 11.6% year-to-date. But consumer staples stocks have fared much better than the broader market.

Tobacco company shares Phillip Morris International (PM 1.37%) to have won nearly 5% in 2022. And despite the stock’s outperformance, it still looks like Philip Morris International could be a buy for income investors. Here’s why.

Adjusted net sales and earnings continue to move up

Philip Morris International released results for the second quarter ended June 30 late last month. And the company beat analyst consensus for adjusted net sales and (adjusted) diluted non-GAAP earnings per share (EPS).

Philip Morris International posted adjusted net sales of $7.8 billion in the second quarter, down 0.1% from the prior-year period. But adjusting for the stronger U.S. dollar, the tobacco company’s adjusted net sales rose 5.3% year over year. That beat the median analyst forecast of $6.8 billion for the quarter. How did Philip Morris International deliver adjusted net sales for the 10th quarter of the last 10 quarters?

Adjusted for the volume loss in Russia and Ukraine, the company’s pro forma shipment volume rose 3% in the second quarter. Philip Morris International’s heat-not-burn tobacco product, IQOS, continued to grow its user base during the quarter due to growing demand for alternatives to traditional cigarettes that are considered less harmful. The total number of IQOS users rose 20.3% to 19 million in the second quarter compared to the same period last year. This caused sales of heated tobacco units to rise 7.4% year over year to 20.1 billion in the quarter.

A 2.4% year-over-year growth rate in traditional cigarette volumes to 143.5 billion was the other component driving shipments higher. Coupled with IQOS’ stronger pricing power over traditional cigarettes, Philip Morris International’s adjusted net sales increased in the second quarter.

The company reported adjusted diluted earnings per share of $1.48 for the quarter, down 6.3% from the prior-year period. That shattered analyst-adjusted diluted EPS estimate of $1.26 for the quarter. Getting back to the company’s currency woes, it gets better: Philip Morris International generated currency-neutral diluted earnings per share of $1.64, a growth rate of 3.8% year over year.

Driven by the tobacco company’s growing smokeless business, analysts expect annual adjusted diluted EPS growth to come in at 2.4% over the next five years. This is impressive as it is despite the temporary drop in earnings due to the Russian invasion of Ukraine.

Image source: Getty Images.

The generous dividend is safe

Philip Morris International’s dividend yield is 5.1%. At first glance, this may seem like a yield trap and too good to be true. But the good news is that doesn’t seem to be the case.

That’s because Philip Morris International’s dividend payout ratio is expected to be 91.9% in 2022. While that would be an extremely high payout ratio for any other company, it’s important to understand that Philip Morris International’s business model requires minimal capital expenditures to function. Dividend growth is likely to be slow for the next several years, but patient investors will be well paid while they wait for dividend growth to pick up again.

A fair rating for a wonderful company

Philip Morris International is a rock solid company. And the rating doesn’t seem too high either.

The stock trades at a forward price-to-earnings (P/E) ratio of 16.5. For comparison, this is slightly lower than the tobacco industry’s average forward price-to-earnings ratio of 17.3. For precisely this reason, Philip Morris International could be a great consumer staples stock to buy and hold during a recession.

Kody Kester has positions at Philip Morris International. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.

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