Imperial Brands (LSE: IMB) is a popular dividend stock and it’s easy to see why. Last financial year, the tobacco giant paid out 139.1p per share in dividends, which translates to a massive yield of 6.8% at today’s share price.
Here, I’m going to look at the Imperial Brands dividend forecast for the years ahead. I’ll also discuss whether I would buy the stock for income today.
Bigger payouta
Before revealing the dividend forecasts, it’s worth highlighting the fact that Imperial Brands’ financial year ends on 30 September. I’ll refer to the year just passed as ‘FY2022’. This year, ending 30 September 2023, is ‘FY2023’.
As for the projected payouts, presently, City analysts expect Imperial Brands to pay out 143p per share for FY2022 and 146p per share for FY2023. So the payouts are expected to be larger than FY2021’s. At the current share price of 2,037p, these estimated payouts equate to yields of 7% and 7.2%. This suggests Imperial Brands could continue to be a cash cow for investors.
It gets better though. You see, Imperial Brands recently launched a substantial share buyback programme. Earlier this month, it said that it plans to repurchase £1bn worth of its own stock between 7 October and 30 September 2023.
Share buybacks don’t benefit investors immediately in the same way that dividends do. However, they are another form of shareholder returns. Buybacks reduce the number of shares on the market, pushing earnings per share up (making a stock more attractive from a fundamental analysis perspective).
Imperial has said that total capital returns in FY2023 are expected to exceed £2.3bn, representing around 13% of the current market capitalisation. In other words, the total yield here (including dividends and share buybacks) for FY2023 could be closer to 13%. That’s impressive.
Are Imperial Brands shares worth buying?
So would I buy Imperial Brands shares for my portfolio today? The answer to that question is no.
There is plenty to like about the stock. For example, I like the fact that the company is quite defensive in nature. In a recession, smokers tend to keep smoking. I also like the stock’s valuation. Currently, IMB has a forward-looking P/E ratio of just seven. So it’s quite cheap.
Another plus is the group’s dividend policy. Right now, Imperial Brands is aiming to grow the dividend annually, taking into account underlying business performance.
What concerns me however, is the lack of top-line growth here. In FY2021, revenue was up just 1.4%. Meanwhile, for the year just passed, Imperial is expecting revenue growth of just 1%. This lack of growth could have implications for dividend growth in the long run.
Another issue for me is regulatory uncertainty. All over the world, governments are cracking down on tobacco companies.
A third concern is debt on the balance sheet. At 31 March, net debt stood at £9.8bn. This is an issue in a rising interest rate environment. Higher interest payments could impact the company’s ability to pay dividends.
Given these issues, I’m happy to pass on Imperial Brands shares for now.