Yahoo Finance Imperial Brands (LON:IMB) Is Increasing Its Dividend To UK£0.48
The board of Imperial Brands PLC (LON:IMB) has announced that it will be increasing its dividend on the 31st of March to UK£0.48. This will take the dividend yield from 8.8% to 8.8%, providing a nice boost to shareholder returns.
Check out our latest analysis for Imperial Brands
Imperial Brands' Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Imperial Brands' dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to fall by 26.1% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 63%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2011, the dividend has gone from UK£0.84 to UK£1.39. This implies that the company grew its distributions at a yearly rate of about 5.1% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Imperial Brands has impressed us by growing EPS at 36% per year over the past five years. Imperial Brands is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.
We Really Like Imperial Brands' Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 3 warning signs for Imperial Brands (of which 1 can't be ignored!) you should know about. We have also put together a list of global stocks with a solid dividend.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
