Phillip Morris International continues to reward investors

If you’re a long-term investor looking for an appealingly priced dividend-income stock and you’re willing to invest in a tobacco company, give Philip Morris International (NYSE: PM) a look.

Within the United States, the tobacco industry is facing some tough challenges. Efforts to educate the public about the dangers of smoking tobacco coupled with strict regulations governing the industry have pushed cigarette prices higher and adult smoking to an all-time low.

According to the Centers for Disease Control and Prevention, just 17.8 percent of adults in the U.S. (42.1 million) are now smokers, compared to 42 percent of the adult population five decades ago. Furthermore, heavy smokers are smoking less. The end result has been a steady decline in cigarette volumes for many tobacco producers.

Enter Philip Morris International, with its strong Marlboro brand, operating in more than 100 countries outside the United States. While it does encounter some countries with even stricter tobacco legislation than the U.S., it also can counteract these slow-growth regions with high-population countries such as India and China, where a growing middle class seeking simple luxuries has turned to tobacco.

Even if Philip Morris International’s business grows slowly in coming years, with its recent price-to-earnings (P/E) ratio near 16 and a fat dividend yield recently at 4.8 percent, it’s still a worthy contender for income-seeking investors.

Ask the Fool

Q: What does it mean if a company is reportedly “stuffing the channel”? – L.C., Chalmette, Louisiana

A: It’s when a company deceptively inflates its sales numbers by shipping products ahead of schedule, filling distribution channels with more than is needed.

Since companies often record sales as soon as they ship products, channel stuffing can make it seem that business is booming. But if many of the products are not sold, they can end up returned to the manufacturer, resulting in sales that were already claimed never occurring.

You can look for channel stuffing by seeing if a company’s accounts receivable is growing faster than sales, as that’s a red flag. Alternatively, calculate its “days sales outstanding” (DSO): Simply divide accounts receivable by sales, and then multiply what you get by the number of days in the period. This reveals how many days’ worth of sales is represented by the current accounts receivable. Between 30 and 45 days is typical. (Note that sales are sometimes referred to as revenue, and that for the number of days, you’ll use 365 for a year and 91 for a quarter.)

A company with a low DSO is getting its cash back quicker and, ideally, putting it immediately to use, getting an edge on the competition. Rising numbers can signify channel stuffing. This doesn’t work for all companies, though. Restaurants and other cash-based businesses, for example, aren’t going to have much, if any, receivables.

Q: What’s business “shrinkage”? – F.B., Fruitland, Maryland

A: Shrinkage is also related to inventory. It’s the routine loss of inventory, such as through accidental breakage or theft. A certain amount of profit-reducing inventory loss is all but inevitable, and retailers make allowances for shrinkage in their plans and reports.

My dumbest investment

My dumbest investment was using my college loan money to buy 300 shares of Dell in 1995 at $20 per share. I sold at $28 and made $2,400. That was a lot of beer money at the time, but if I’d held on, I could have made more than 40 times my initial investment.

I bought shares of digital storage company Iomega in 1994 and rode it all the way up, and then all the way down. At its peak, my $3,900 investment was worth $120,000.

I guess the moral of my investment saga is timing. It’s all about timing, and no one can time the market. But I will keep trying. - D., online

The Fool responds: No one can time the market perfectly, as we’ll never know exactly when it or any given stock will surge or plunge. Instead, it’s best to just keep up with your holdings, hanging on for the long haul as long as you remain confident of their competitive positions and their future. If your confidence falters or you find much more compelling stocks, sell.