1 Magnificent Dividend Growth Stock That Can Outperform the S&P 500

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Investors love dividends for their durability and stability during volatile markets. As anyone who has paid attention to the last five years is aware, we have seen quite volatile markets (both upward and downward). Steady dividend payments can help you weather the volatility storm.

But what’s an investor to do when the S&P 500 only pays an average dividend that yields 1.32%? That is not much annual income and significantly worse than the return you can get owning short-term Treasury bills at the moment.

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Investors need to look for stocks with high starting dividend yields that also have the earnings growth to propel these dividend payments higher year after year. These stocks are few and far between with the market at all-time highs.

One stock that fits this criteria is Philip Morris International (NYSE: PM). This misunderstood nicotine giant is posting strong revenue and earnings growth and currently has a dividend yield above 4%. Here’s why this dividend growth stock can outperform the S&P 500 over the next decade.

Philip Morris is mainly understood as a seller of cigarettes outside the United States, with brands including Marlboro and Chesterfield. This is not the full picture of the business today and hasn’t been for many years.

Through internal investments and acquisitions, the company has greatly expanded its operations away from cigarettes to include heat-not-burn tobacco, electronic vapor, and nicotine pouches. These are known to be less harmful ways to consume nicotine and have been gaining market share versus cigarettes for over a decade now with Philip Morris leading the industry in this shift.

Last quarter, these new-age nicotine products made up 38% of the company’s overall revenue and are growing faster than its consolidated business. Through strong growth from Zyn nicotine pouches in the United States and Iqos heat-not-burn devices in Europe and Japan, Philip Morris’ smoke-free division grew sales 16.8% year over year last quarter. Gross margin improved due to more scale, leading to 20.2% gross profit growth for the segment.

As these products take over the nicotine market in the next decade or two, they can drive revenue growth for many years into the future.

Don’t sleep on the old-school cigarette business for Philip Morris International. Through consistent price increases, the company has been able to grow its earnings for a long time from this segment.

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