Is Imperial Brand’s 7.5 Per Cent Dividend Yield Sustainable?

  • Apr 17, 2019 BST
  • Team Kalkine
Is Imperial Brand’s 7.5 Per Cent Dividend Yield Sustainable?

Imperial Brands Plc (IMB), is a fast-moving consumer goods company with a core business built around a tobacco portfolio. The company offers a comprehensive range of cigarettes, fine cut and smokeless tobaccos, papers and cigars and is increasingly focusing its attention on developing and expanding its Next Generation Products (NGP) portfolio. The company’s operations are differentiated in two segments: Tobacco & NGP and Distribution. Within Tobacco & NGP, the operations are further divided into Returns Markets North and Returns Markets South.

The group has a decent track record when it comes to distributing a dividend to its shareholders. Since 2013, the dividend has risen by more than 60% in absolute terms, which could be the same going forward. From CAGR standpoint, the dividend payment has been increased with a CAGR of 10.03 per cent. 

However, investors should pay attention as high dividend they are paying to the shareholders may be not sustainable. A large number of companies are witnessing high dividend yield primarily because of the steep plunge in their stock price since the Brexit referendum took place. “Dividend yield is a measure of a company's profit distributed to the shareholder relative to their respective stock price.”

Although, Imperial Brands reported strong trading update last month. The group has also made a significant investment in its next-generation myblu vaping product and updated that next-generation product myblu is gaining a lot of traction in the retail market.

Stock Performance

Daily Price Chart (as on April 17, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (as on April 17, 2019, at 02:34 PM GMT), shares of IMB were quoting at GBX 2,494.50 and declined by 3 points or 0.12% against its previous day close price. At the current price level, as quoted in the price chart, shares were trading 34.6% below its past two year's high of GBX 3,818.50, which led to a surge in dividend yield to 7.5%. During the past one-year, shares have registered a 52w high of GBX 3,009 and a 52w low of GBX 2,239.50 and at the current market price, shares were trading 16.82% below its 52w high price level and 11.7% above its 52w low price level.

In past one-year, stock has delivered a return of 2.58% and on a year-to-date basis, the stock is up by 5.30%. However, the stock has witnessed a steep plunge in last one-month post-US FDA notified linkage between consumption of e-cigarette and chance of epilepsy.

Stock carrying a Beta of 1.02, which indicates movement in the stock price is broadly in line with the movement in the broader index FTSE 100.

At the simple moving average (SMA) standpoint, shares were trading below its 30-day, 60-day and 200-day SMA, which indicates stock could fall further from this price level.

The outstanding market capitalisation of the company stood at £24.04 bn which ranks it among the large-cap companies listed on the London Stock Exchange and a constituent of FTSE 100 index as well.

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