Phillip Morris (PM) vs. Altria Group (MO) Continues to Track the Dollar

Here at Bespoke, we’ve been harping on the dollar’s impact on stock performance since we launched back in 2007.  In fact, the very first report that we published when we launched Bespoke covered this topic.  Simply put, US companies that generate a large portion of their revenues outside of the US do better in a “falling dollar” environment, while US companies that generate a large portion of their revenues domestically do better in a “rising dollar” environment.  

Annual members of our Bespoke Premium service and all members of our Bespoke Institutional service have access to our International Revenues Database.  This database provides users with a breakdown of domestic versus international revenues for all companies in the Russell 1,000 and S&P 500.  If you expect the Dollar to remain strong, you would look for “domestic” stocks in the database.  If you expect the Dollar to retreat from multi-year highs, you would look for “international” stocks in the database.

The best example we can use to highlight how this trend plays out is to compare the performance of Altria Group (MO) and Philip Morris International (PM).  Back in 2008, Altria Group (the old Philip Morris) broke its domestic and international operations into two different entities.  The two new companies now trade as Altria Group (MO) and Philip Morris International (PM).  All of Altria’s (MO) revenues are generated domestically here in the US, while all of Philip Morris International’s revenues are generated outside of the US.

Take a look at the performance of Altria Group (MO) and Philip Morris International (PM) since the start of 2013 in the chart below.  The performance disparity is glaring.  Altria Group — the domestic unit — is up 71.4%, while Philip Morris Int’l — the international unit — is flat as a pancake (up 0.1%).

Now look at the way the US Dollar index has traded alongside the two over the same time period.  Since the US Dollar began its huge run higher in 2014, MO (domestic) has skyrocketed, while PM has flat-lined.

The performance disparity between MO and PM has caused PM’s dividend yield to move nearly 100 basis points higher than the dividend yield of MO.  Right now, PM is yielding 4.8%, while MO has a yield of 3.86%.  As shown in the chart below, MO’s yield was higher than PM’s up until just recently, when MO began rising sharply in price.  

Below is a chart that shows the spread between the yield of PM and the yield of MO (PM’s yield minus MO’s yield).  We have overlaid the US Dollar index onto the chart so you can compare the movements once again.  As shown, the spread actually pre-empted the move higher in the Dollar by about six months.  As long as the Dollar is heading higher, the “domestics” from our International Revenues Database should continue to outperform the “internationals”.  If you start to see the “internationals” like PM start to outperform, it’s probably a sign that uphill climb for the Dollar is running out of steam.

Interested in accessing the Bespoke International Revenues Database?  Become an annual Bespoke Premium or Bespoke Institutional member today!