With a huge dividend yield of 9%, tobacco bigi Imperial brand (LSE: IMB) Looks like a potential good buy for my earnings portfolio. There are only a handful FTSE 100 Companies that give higher yields.
Benefits in Imperial Brand Dividends
And which are mostly in cyclical industries such as mining and real estate, which have recently improved in their respective sectors. But I’m not sure if they can pay higher dividends if the high growth stage falls. Imperial brands, on the other hand, provide a much more reliable stream of passive income.
Smokers do not quit easily, which means that whatever the economy, the fortunes of tobacco companies are unlikely to be too low. And it translates into a continuum of dividend payments. This is evident in the Imperial brand’s consistent dividends over time. And big dividends, that. Over the last three years or so, it has yielded a dividend yield of over 8%, and for most of last year it was actually double.
Declining share prices increase dividend yields
There is a catch in this FTSE 100 stock, however. Its share price has been steadily declining. In the last five years, it has more than halved, which also explains its growing dividend yield. Earnings are nothing more than the amount of dividends divided by the share price. So when the share price goes down, the yield increases without any change in the amount of dividends.
Nevertheless, it may still be worth my while buying the stock, which, incidentally, I already have, if its price is expected to rise in the future. It is possible. The share price of the Imperial brand has risen about 9% in recent years. And it is still about 25% below its pre-epidemic level.
Strong performance for the Imperial brand
In the meantime, its effectiveness has only been strengthened. For the half-year ended March 30, 2021, it saw a 6% increase in revenue and a 244% increase in earnings per share (EPS) over the previous year. And it follows a healthy performance in full 2020. Even in its trading update released earlier today, the company hopes to meet its guidelines. And it has nothing to do with encouraging stock pessimism.
Why are investors frustrated?
Nevertheless, the share price of the Imperial brand fell nearly 3.5% today, making it one of the biggest FTSE 100 losers today. This is partly the result of the weakness of the overall market, the FTSE 100 index by 1.5% I am writing. But it probably has something to do with the update.
There are very few of these that encourage me to think that it is on the path to long-term growth. Next-generation products (NGPs), which include products such as VAP, are expected to show the same revenue levels in the second half of the year as they did in the first half. As an investor, I would ideally see further growth from this segment, as conventional tobacco products are constantly losing market share.
What would I do
For now, however, I hold the stock and will make my decision on what to do next about my shareholding after seeing its full year results in November.
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Manika Premsingh owns shares in the Imperial brand. Motley Flower UK has been recommended by the Imperial brand. The opinions expressed in the companies mentioned in this article may differ from those of the authors and therefore the official recommendations we make on our subscription services such as Share Advisors, Hidden Winners and Pro. Here at The Motley Flower we believe that considering a variety of insights makes us a better investor.