Embarking on a journey in dividend investing often resembles hunting for buried treasure. Uncovering a stock that consistently delivers handsome payouts requires careful selection and constant vigilance. The fear of falling into a pitfall looms large — stumbling upon a yield trap could endanger your dividend income if a company’s business trajectory takes a nosedive. Stumbling upon dividend stocks that not only offer attractive yields but also exhibit the potential for stock price appreciation is akin to discovering a hidden gem.
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The Evolving Story of Philip Morris International
Philip Morris International (NYSE: PM) may not appear as an obvious choice for dividend seekers. After all, the specter of declining cigarette consumption has haunted the tobacco industry for years. Yet, Philip Morris has metamorphosed into a diverse entity beyond the confines of traditional tobacco products.
The crown jewel in its growth portfolio, once held by Marlboro, now adorns the head of Iqos, its groundbreaking heat-not-burn innovation. Iqos has witnessed meteoric global growth, heralding the company’s pivot away from traditional smoking habits. Representing over 50% of revenue in 25 key markets, smoke-free products accounted for nearly 40% of revenue and soared by over 40% in gross profit YoY during the last quarter.
Of Philip Morris’ $9 billion revenue stream, smoke-free products contributed $3.6 billion, with a 13.6% YoY surge in the fourth quarter propelling overall revenue 8.3% higher to $9 billion. Despite a mere 1.4% dip in cigarette sales to 613 billion units in 2023, heated tobacco units surged by 14.7% to 125 billion.
Moreover, complementing Iqos, there is a cadre of high-growth smoke-free products in Philip Morris’ arsenal post the Swedish Match acquisition. The sales of nicotine pouches in the U.S. tripled YoY in the final quarter to 116.3 million units, while Scandinavia-focused Snus witnessed a 41% uptick to 57.1 million units, signaling triumph with these offerings.
In the face of dwindling cigarette volumes, the company’s adjusted operating income ascended by 3.3%, or 3.7% organically, climbing to $13.3 billion. As the lucrative smoke-free business continues to command a larger share of the revenue pie, profit growth could escalate. Despite a sluggish ascent in the stock price over the past decade, the stock boasts an enticing 5.7% yield, positioning itself as an appealing dividend play capable of doubling in value over time fueled by the burgeoning next-gen product line.
Although the ascent might span a decade, the trajectory of the share price is destined upwards as the smoke-free segment flourishes.
Outfront Media: A Beacon in the REIT Domain
Savvy investors understand the allure of real estate investment trusts (REITs) as havens for dividend treasures. One such gem that gleams brightly is Outfront Media (NYSE: OUT), a titan in the out-of-home (OOH) advertising realm globally, focusing on billboards, transit, and mobile assets predominantly in North America. Coupling a burgeoning and modernizing sector to infiltrate, the stock presently offers a tantalizing dividend yield of 7.5%.
The OOH domain is witnessing an uptick in growth as it morphs towards digital advertising, enabling outdoor ad campaigns to adapt to weather, traffic conditions, and even target individual passersby via their smartphones.
Outfront is poised to ride this wave, notably facilitating programmatic buying for OOH displays that empowers marketers to automate their campaigns based on data. Bolstered by its digital direct ad server, the company enhances ad targeting capabilities.
New technological strides often pave the path for monetization opportunities, and Outfront appears well-positioned to capitalize on the digital billboard transition, as evidenced by its premium pricing endeavors owing to new technologies cited in its Q4 report. With an optimistic outlook for a robust media market in 2024, both internally and for the broader OOH industry, the stage is set for Outfront’s ascent.
One major catalyst propelling Outfront Media is its stock still trading nearly 50% below its peak from early 2022 before the turbulence in the ad market ensued. As the market gradually recuperates, the stock is poised for further appreciation, already marking a notable 65% upswing from recent lows.
Moreover, the potential expansion of its $0.30 per share quarterly dividends to pre-pandemic levels of $0.38 per share augurs well for income-seeking investors.
If the recovery trajectory in the ad market remains on course, Outfront has the potential to double within the next year or two as investor confidence rekindles in this high-yielding cyclical REIT.
Should you invest $1,000 in Outfront Media right now?
Before diving into Outfront Media stock, it’s prudent to weigh your options:
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Jeremy Bowman holds no position in any stocks mentioned. The Motley Fool endorses Outfront Media and Philip Morris International. The Motley Fool abides by a disclosure policy.
The opinions recounted in this article belong to the author and do not necessarily align with those of Nasdaq, Inc.
