Course 407: High-Yield Stocks
Conclusion: Looking Both Ways
In this course
1 Introduction
2 What Is the Company's Dividend Track Record?
3 Is the Payout Ratio Rising?
4 Are the Company's Sales and Earnings in Line and Stable?
5 Does the Company Generate Consistent Free Cash Flow?
6 Is the Balance Sheet Healthy?
7 How Has the Stock Performed?
8 Is This Stock Expensive Relative to Others in Its Industry?
9 Conclusion: Looking Both Ways

Philip Morris' business has historically been stable enough for the company to pay out a consistently plump dividend. Its sales and earnings have been fairly steady, and even when earnings declined in 1998, the dividend still rose. It has a manageable amount of debt and generates huge amounts of cash, much of which it uses to pay out dividends, and the rest of which it stashes away for contingencies. The one major risk factor is the tobacco litigation issue, which has made Philip Morris more volatile than the typical high-yield stock and driven its price down. But this volatility has been cushioned by the company's consistent and juicy dividend, which is not likely to be cut even in a doomsday litigation scenario. Despite the bumpy ride its stock price has taken, Philip Morris has done very well what a high-yield stock should do: provide a consistent stream of income to its shareholders.

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