A Once-in-a-Decade Opportunity: Buy This Magnificent Dividend Stock With a 4.2% Yield in 2025 and "Never" Sell

The world is awash in stock market fever. Well, at least a fever centered on artificial intelligence (AI), semiconductors, and cryptocurrency-related investments. If your portfolio is focused on these categories, perhaps it is time to think about diversification.

While betting on risky stocks can seem easy in a bull market, those dazzling returns can look ugly when the market inevitably goes through a down cycle. The time is now -- not later -- to build a robust portfolio that will hold up through all market environments.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. See the 10 stocks »

What stock should an investor buy for diversification? My bet is Philip Morris International (NYSE: PM). The global nicotine giant has a dividend yield above 4%, a clean balance sheet, and new segments that should help the company grow earnings per share (EPS) at a double-digit rate for years to come. Here's why the stock is a great buy as the company tackles the transition from cigarettes and wins the market for new nicotine-cessation products.

Philip Morris: A one-time opportunity to switch from cigarettes

Philip Morris International owns many cigarette brands, including Marlboro, Chesterfield, and Parliment, and sells them in virtually every country except China and the United States (Altria Group has the right to sell these brands in the US). With exposure to more stable cigarette smoking markets, Philip Morris International is one of the few tobacco companies facing drastic volume declines for its legacy products. In fact, its cigarette volumes grew 1.3% year over year last quarter.

Compared to its American brethren, Altria Group, which had an 8.6% cigarette volume decline last quarter, Philip Morris International's legacy tobacco profits should be durable and likely grow in the years to come due to price increases on packs of cigarettes. However, the company is not sitting tight.

Management has spent billions of dollars and made a large acquisition to tackle the new-age nicotine market, which is taking the category by storm. It has the leading heat-not-burn device, IQOS, and owns Zyn, the dominant nicotine pouch brand in the United States.

These new products are not only less harmful than traditional cigarettes from a health perspective but also have a huge growth runway ahead of them. Last quarter, Philip Morris International's smoke-free revenue grew 16.8% year over year on the back of volume growth from IQOS and Zyn. Smoke-free categories now account for 38% of the company's overall revenue and will become a growing piece of the pie for years to come.

Unlocking nicotine pouch supply to accelerate growth

Philip Morris International's revenue grew 11% year over year last quarter. What makes this number look even better is the supply shortage of its popular Zyn nicotine pouches. With seemingly insatiable customer demand, Philip Morris has been unable to match supply with demand in the United States. Zyn volumes still grew aggressively last quarter, but its market share fell from 75% to 65% due to the product being out of stock at retailers.

Once the Zyn shortage ends -- which management expects will occur shortly -- this should lead to an acceleration of Zyn's volume growth and Philip Morris International's topline revenue growth. The combination of Zyn and IQOS volume growth has me confident that this company can grow revenue and earnings at a double-digit rate for many years into the future.

PM Dividend Per Share (TTM) data by YCharts. TTM = trailing 12 months.

Steady dividend growth and wealth appreciation

Philip Morris stock has a dividend that currently yields around 4.2%. The company is funding these dividend payouts with profits from legacy cigarettes and growing earnings from Zyn and IQOS. Its dividend per share is currently $5.25, which is sustainably funded with its $6.46 in free cash flow per share.

Over the coming years, I expect the company's free cash flow per share to keep climbing higher due to the abovementioned growth factors. When this happens, the company will have more and more room to raise its dividend per share, which will increase the income you earn from the investment each year.

With a starting dividend yield of 4.2% and a dominant position in nicotine pouches and heat-not-burn devices, I think Philip Morris International is a rock-solid pick during this one-time transition from cigarettes to safer nicotine products. Buy this stock for your portfolio and never sell.

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*Stock Advisor returns as of January 27, 2025

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Philip Morris International. The Motley Fool has a disclosure policy.