Best Stock to Buy Right Now: Philip Morris International vs. British American Tobacco


If you’re a dividend investor, you’ve probably considered buying some tobacco stocks if you don’t already own them.

The tobacco sector has long been ripe terrain for income investors. These stocks tend to generate wide profit margins, have recession-proof business models, and require relatively little spending on capital expenditures or research and development, so they return most of their profits to investors.

Two of the world’s largest, best-known tobacco stocks are Philip Morris International (NYSE: PM) and British American Tobacco (NYSE: BTI). There’s a good case for including both in any dividend stock portfolio, especially one focused on high-yield stocks. But if you had to choose between the two, which is the better buy today?

Let’s take a look at how these two tobacco titans stack up now.

A cigarette poking out of a full pack.A cigarette poking out of a full pack.

Image source: Getty Images.

Business model: Philip Morris International vs. British American Tobacco

As tobacco stocks, both companies have similar business models, but there’s more to the tobacco industry these days than just cigarettes. The industry is moving beyond combustibles to products like vapes and oral nicotine pouches that claim to be less harmful, and both Philip Morris and British American Tobacco (BAT) have established themselves as leaders in this transition.

Philip Morris is known for selling Marlboro and other cigarette brands in international markets, while its heat-not-burn product, IQOS, leads its smoke-free efforts. IQOS uses real tobacco rather than the liquid common in e-cigarettes. In 2023, smoke-free products brought in 36.5% of the company’s revenue and a greater percentage of its gross profits.

Historically, Philip Morris has operated outside the U.S. only as part of the company’s split from Altria in 2007. However, it just bought the rights to sell IQOS in the U.S. from Altria for $2.7 billion, indicating the company is bullish about the product. It’s also seen strong growth from Zyn, a branded oral nicotine pouch it gained in its acquisition of Swedish Match.

British American Tobacco, which sells its products globally, is known for cigarette brands like Camel, Newport, and Lucky Strike, some of which it acquired in its merger nearly a decade ago with RJ Reynolds. The company recently took a $31 billion write-down on the value of its U.S. cigarette business, showing that it likely overpaid for that acquisition and that it’s focused on transitioning to smoke-free products.

In 2023, organic revenue rose 21%, driven by the growth of the Vuse vape brand and Velo oral nicotine pouch, and achieved profitability two years ahead of BAT’s original target. New categories made up 12% of its revenue, and that share should continue to grow, given its 21% revenue growth rate in 2023.

Financials: Philip Morris International vs. British American Tobacco

Philip delivered strong growth in the first quarter, with organic revenue up 11% to $8.8 billion and overall shipment volume growth of 3.6% to 180.5 billion units. Cigarette shipments declined just 0.4% to 143.2 million, and the company posted strong growth in smoke-free products. Heated tobacco units rose 20.9% to 33.1 billion, and oral smoke-free products increased 35.8% to 4.2 billion.

On the bottom line, the company’s margin expanded, with organic gross profit increasing 13.7% to $5.6 billion, while organic operating income jumped 22.2% to $2 billion.

As a British company, British American Tobacco doesn’t report results quarterly, but we can make comparisons with its 2023 performance.

On an adjusted organic basis, BAT’s revenue rose 3.1% to 27.3 British pounds ($34.02), and adjusted operating profit rose 3.9% to 12.5 million pounds ($15.5 million), reaching an operating margin of 45.7%. Organic revenue from new categories rose 21% to 3.34 British pounds ($4.16). About half of that business comes from vapor, with the remainder from heated products and oral nicotine pouches.

Here, the edge goes to Philip Morris because it’s growing faster, driving margin expansion, and has made more progress on next-gen products.

Dividend and valuation: Philip Morris International vs. British American Tobacco

On metrics like dividend yield and valuation, British American Tobacco gets the edge. BAT trades at a yield of 9.5% and has a price-to-earnings valuation of just 6.7. Philip Morris, on the other hand, offers a dividend yield of 5% and currently trades at a price-to-earnings ratio of 16.9.

British American Tobacco is clearly much cheaper than Philip Morris and offers a dividend yield that’s nearly double that of Philip Morris.

Past performance: Philip Morris International vs. British American Tobacco

Finally, it’s worth considering how both stocks have performed in the recent past, as rising stocks tend to continue rising, and falling stocks can have trouble rebounding.

As you can see from the chart below, Philip Morris has the clear edge on both price appreciation and total return.

PM ChartPM Chart

What’s the better buy?

Dividend investors may prefer to buy shares of British American Tobacco due to its strong yield and cheaper valuation, but overall, Philip Morris looks like the better stock to own. It’s executing across its business, outgrowing the competition, and is well ahead of its peers in transitioning to smoke-free products.

Philip Morris looks like a good bet to outperform BAT, even with the gap in dividends.

Should you invest $1,000 in Philip Morris International right now?

Before you buy stock in Philip Morris International, consider this:

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco P.l.c. and Philip Morris International and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.

Best Stock to Buy Right Now: Philip Morris International vs. British American Tobacco was originally published by The Motley Fool



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