Imperial brands PLC (LON: IMB) will increase its dividend on September 30 to UK £ 0.21, 1.0% more than last year. This will bring the annual payout from 9.0% to 9.0% of the share price, which is higher than what most companies in the industry pay.
Imperial Brands payment has strong revenue coverage
While it’s great to have a strong dividend yield, we also need to determine if the payout is sustainable. Based on the last payment, Imperial Brands was earning comfortably enough to cover the dividend. This indicates that a fairly large proportion of the profits are reinvested in the business.
EPS is expected to decline 28.0% over the next 12 months. If the dividend continues according to recent trends, we estimate the payout ratio could be 68%, which we consider to be quite comfortable, with most of the company profit remaining to grow the business in the future.
While the company has been paying a dividend for a long time, it has reduced the dividend at least once in the past 10 years. The first annual payment in the last 10 years was UK £ 0.84 in 2011, and the most recent financial year payment was UK £ 1.38. This means that he increased his distributions by 5.0% per annum during this period. A reasonable rate of dividend growth is good to see, but we are concerned that the dividend history is not as strong as we would like, having been cut at least once.
The dividend seems likely to increase
Growth in earnings per share could be a mitigating factor considering past dividend fluctuations. Imperial Brands has seen its EPS increase over the past five years, at 20% per year. Given that earnings per share are growing at an acceptable rate and the distribution policy is balanced, we believe the company is well positioned to grow earnings and dividends going forward.
We really like the dividend from Imperial Brands
Overall, a rise in dividends is always good, and we believe Imperial Brands is a solid income stock thanks to its track record and growing earnings. Distributions are easily covered by profits, and a lot of cash is also generated. Note that earnings are expected to decline over the next 12 months, which won’t be a problem if this doesn’t become a trend, but could cause turmoil next year. Overall, this ticks a lot of the boxes that we look for when choosing an income stock.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. However, there are other things for investors to consider when analyzing the performance of stocks. For example, we have identified 3 warning signs for imperial brands (1 makes us a little uncomfortable!) Which you should be aware of before investing. Looking for more high yield dividend ideas? Try our organized list of big dividend payers.
This Simply Wall St article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.
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