More recently, the face of Philip Morris International's dividend growth has slowed. A 6% rise in 2014 raised some alarm bells, and this year's 2% boost seemed almost like a token gesture.
The primary problem that has held back Philip Morris has been the strength of the U.S. dollar. As a U.S. company that does all of its business overseas, Philip Morris relies on revenue denominated in foreign currencies, and those currencies have generally performed badly for several years. As the U.S. economy continues to outperform much of the rest of the world, the dollar's strength has had an even greater influence on internationally focused companies, and Philip Morris is one of the most extreme examples.
For instance, in Philip Morris' most recent quarter , the company posted adjusted earnings of $1.24 per share. Yet the impact of falling foreign currencies cost Philip Morris $0.37 per share in earnings. The effect on the top line has been equally large, with a $1.4 billion currency hit to sales turning what would have been 6% revenue growth into a 12% drop. Those are problems that British American Tobacco and Imperial Tobacco largely don't have to deal with, as the British pound has weakened appreciably against the U.S. dollar over the past year, putting Imperial and British American in a better foreign-exchange position.
Nevertheless, Philip Morris has made it clear that its priority is to sustain and grow the dividend. The company has suspended what was a large stock repurchase program for 2015 in order to ensure that sufficient capital was available to continue making dividend payments.
To do so, Philip Morris has made smart business moves . The company's investment in cigarette alternatives has risen lately, with its iQOS heat-not-burn technology showing early signs of promise among customers. The tobacco giant has also used strategies to reduce internal costs while keeping cigarette prices moving higher to help offset the dollar's impact.
When will Philip Morris International's dividends rise again?
Philip Morris' 2% increase came just a few months ago, and the company generally announces dividend boosts around the same time each year in early to mid-September. With the company's payout ratio being fairly high, the future of Philip Morris International's dividend growth will rely largely on what happens to foreign currency exchange rates between now and next summer. If the dollar can finally stop appreciating quite so much against key currencies, then Philip Morris could finally get back to a position in which double-digit percentage dividend growth is a possibility for 2016 and beyond.
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The article Will Philip Morris International Inc. Raise Its Dividend in 2016? originally appeared on Fool.com.
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