Imperial Tobacco (LSE: IMT) (NASDAQOTH:ITYBY) has recorded strong rises in earnings per share (EPS) for five years in a row now — and although forecasts suggest a flat year for 2014, there’s a 5% EPS rise pencilled in for 2015.
On top of that, dividend yields topped 5% in 2013, with 5.5% expected this year and more than 6% in 2015.
And with the shares currently priced at 2,380p, they’re on a forward price-to-earnings (P/E) ratio of only 11! Must be a great candidate for some of your 2014 ISA allowance of  £11,760 then?
Nope! And here’s why I think not…
Declining industry
When Imperial Tobacco reported first-quarter results to December 2013, the firm was able to reveal a 2% rise in its “growth” brand volumes, with an 8% rise in growth markets — growth brands accounted for 39% of Imperial’s net revenue.
But that was against a background of falling volumes across the industry, with Imperial telling us of a 5% decline. Total net revenue for the quarter fell 6% as reported, although Imperial said there was a 1% underlying rise.
Looking back to last 2013’s full-year results, Imperial saw revenue flat with growth brand volumes actually falling a little — but adjusted EPS gained 5% and the firm lifted its dividend by 10%.
Falling volumes
But “market conditions remain tough“, we were told, and Imperial’s total volumes in stick terms fell 7% to 341 billion.
Investors today are likely to enjoy a few more years of very nice dividends, and maybe some share price growth, so why wouldn’t I have Imperial Tobacco in an ISA?
Future history?
It’s down to my thought that the tax-free allowance is likely to do you more good if you use it with a very long-term horizon (although I confess that’s my feeling about investing in general). And I’d only want a company in my ISA if I thought it would be looking a lot stronger in 20 years’ time.
The tobacco business 20 years from now? Many will hope to see it facing extinction, and I wouldn’t be at all surprised to see it well on its way.