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Did Philip Morris Disappoint Dividend Investors I would like to discuss the context surrounding the recent 2% dividend hike at Philip Morris International (NYSE:PM). Based on the tobacco giant's usual custom, this recent hike has been far below the usual norm. Since being spun off from Altria (NYSE:MO) in 2008, Philip Morris International has averaged a compound annual growth rate of 11.6%. This departure from the recent norm has worried some investors about the long-term dividend growth potential of this stock that has treated investors extraordinarily well over the past century. You should keep in mind the context of payout ratios in the tobacco industry. Generally, the growth rate of tobacco shipments around the globe is negligible. It might be up 2% in one year, down 3% in the next. There is no great need to retain profits and invest in factories, trucks, and tobacco sales teams because the markets are largely predetermined and only require moderate toggles in existing capacities to meet market demands. As a result, the dividend payout ratio in the industry is quite high. The industry average is 76%. This works out well for income investors who want to receive high current income, but it also comes with a catch: Future dividend hikes are closely tied to the annual fluctuations in earnings growth. There is limited room for additional payout ratio growth, and any growth struggles in the tobacco industry are quickly felt by their shareholders in the form of a reduced dividend growth rate. There is a wrinkle to PM's business model that makes it different from its industry peers. dollar is unusually strong, the actual earnings growth of Philip Morris in the countries in which it conducts business become understated as the dollar conversion acts as a negative countervailing force. dollar gained 20% in the past year against the basket of currencies that represent Philip Morris International's earnings. As a consequence, the reported earnings at the company do not simply tell you how Marlboro is performing around the globe, but instead, it tells you how Marlboro is performing after cigarette profits in euros, rubles, and yens get converted to dollars. And Philip Morris currently has its profits impacted to the tune of $0.82 per share. dollar to perform dramatically better than the other currencies around the world for the long term. If, however, you conclude that currency strengths operate in cycles, then it makes sense to treat this current period as a time to gobble up shares of Philip Morris International while macro conditions distort the reported earnings. How does this relate to the dividend? Well, to state the obvious, dividends can only get paid out of dividends that show up in the company's New York Treasury. dollar remains relatively strong. The core business, however, continues to perform much better. Philip Morris is growing profits at 8% annually on a constant-currency basis, and that is about what you'd expect from the company. Over the long run, rather than the short run, I would expect the dividend growth rate of Philip Morris International to match 8% annually because reinvestment needs into the core business will continue to be low. Likewise, if earnings growth occurs at 8%, the dividend won't be able to rise much more than that because the payout ratio already consumes most of the company's earnings. Currencies affect earnings. Philip Morris is unusual in that it generates no profits in its home country, and all of its profits experience a currency conversion. It's part of the ebb and flow of this company. It's nothing to get worried about, and instead, provides an opportunity for new investments and even dividend reinvestment.