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Another Look At The Recent Dividend Hike Philip Morris International Inc. (NYSE:PM) is the leading international tobacco company, with seven of the world's top 15 brands, including Marlboro, Parliament, L Philip Morris and others. PM's products are sold in approximately 180 countries in the European Union, Eastern Europe, the Middle East, Africa, Asia, Latin America, and Canada. These amounts are amazing by any measure! Below are several metrics for PM and other 3 tobacco giants: Phillip MorrisAltria GroupLorillard Inc. (NYSE:LO)Reynolds American Inc. These two ratios might indicate a slightly high price for the stock. This is where I do not like what management is doing and why I think they are far too liberal with their stock buybacks and high dividends. Take a look at the table below:PM Metrics ($ Thousands) 1-6/20131-12/20121-12/20111-12/2010Free Cash Flow3,980,0008,365,0009,632,0008,724,000Dividends Paid2,815,0005,404,0004,788,0004,423,000Stocks Buy Back3,028,0006,524,0005,297,0004,801,000Returned to Stockholders in Excess of FCF-1,863,000-3,563,000-453,000-500,000 Net Borrowing2,762,0004,177,0002,058,000938,000As can be understood from the first line, the company's impressive FCF clearly shows a strong business model that is overall well executed, and enjoys exceptionally strong brands and global fingerprint. That can indicate a promising candidate to your portfolio. But then, take a look at the huge pile of money the company returns to its stock holders as dividends and buy backs. What can be seen as a management highly committed to its stockholders can also be understood quite differently: the company consistently returns to its stockholders more money than it produced. It does so by assuming more and more debt every year. In other words, PM's management loads debt and pays it to its stockholders. Simply put, if I wanted to take a loan I would have done that myself. As an investor I would like cash flows from operations to be invested in future business growth first (MUTF:CAPEX), then if the company's debt and other liabilities level is acceptable I would like excess cash returned to me. then, on September 11, PM announced yet another anticipated 10.6% increase in its annual dividend. Its stocks bounced over 2.6% as a result. As much as I like high and rising dividends, I would first like to see lower debt and liabilities levels first or alternatively more debt assumed for future developments, not for dividend hikes or stock buybacks. Therefore I do not join the party and am not happy with this divided hike. ConclusionPM can easily have a rock-solid balance sheet that will support higher valuations and help prepare for tougher times ahead. With the current situation I will stay on the sidelines, hope for management to start deleveraging and wait for a stock price decrease to the lower-mid $70s before I initiate a long position. As for MO, LO and RAI - all 3 companies are strong players with well-known and established brand names. They all operate mainly in the USA and are considered defensive plays, mainly thanks to their solid cash flows and addicted customer base. LO seems to be the cheapest of them by most metrics. However, since they lack the global exposure of PM and operate in a market where the trend is to decrease tobacco use by legislation or by constantly discussing the related health hazards - I do not intend to start a position in any of them (at least not in current valuations). Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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