The Ultimate Dividend Growth Stock for Generating Passive Income

In times when influencers on social media almost ubiquitously encourage investing in real estate, the question arises: Is this truly the best way to generate passive income? Upon closer examination, it becomes clear that real estate investments are often not as passive as they are portrayed. From property maintenance to rental management to regulatory bureaucracy—the reality often deviates from the idealized notion. True passive income streams, on the other hand, can be achieved through dividend stocks. An outstanding choice in this area is Philip Morris International, a publicly traded company considered a top dividend growth stock thanks to steadily increasing dividend payments. An investment of $25,000 in Philip Morris allows investors to earn about $1,000 annually in passive income. Philip Morris International is known for its international Marlboro brands and holds a leading position in the global tobacco market outside the U.S. and China. Despite the worldwide decline in cigarette consumption, the company remains stable due to its presence in high-growth regions. This stability is reflected in the sales figures, which remained unchanged at 300 billion cigarettes in the first half of 2024. Price increases led to a revenue growth of 4.3% in the first half of the year, despite currency-related obstacles. Philip Morris is also increasingly focusing on alternative nicotine products such as heat-not-burn units and tobacco-free nicotine pouches. These segments are growing rapidly; in the first half of 2024, sales of smokeless products rose by 21.3%. The brand Zyn, known for its tobacco-free nicotine pouches, saw volume growth of over 50% year-over-year in the U.S., encountering supply issues due to high demand. These new product categories initially strained profit margins, but a turnaround is on the horizon. Last year, Philip Morris's operating margin rose to 36.7%, indicating the progressive scaling of the new nicotine products. Currently, Philip Morris’s dividend yield stands at 4.5%. Thus, an investment of $25,000 generates over $1,000 in passive income per year. However, it is advisable to consider Philip Morris as part of a diversified portfolio. The most impressive feature of Philip Morris is the prospect of healthy dividend growth in the coming years. With a dividend of $5.20 per share and a free cash flow of $6.50 per share, the potential for dividend doubling in the next five to ten years is evident. This makes Philip Morris International an excellent choice for long-term oriented investors. Additionally, the recommendation from the Motley Fool Stock Advisor analysts, who are always on the lookout for the best investments, underscores the value of taking a closer look at these potential growth stocks.