Imperial Tobacco Group PLC’s Dividend Prospects For 2014 And Beyond

G A Chester analyses the income outlook for Imperial Tobacco Group PLC (LON:IMT).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Many top FTSE 100 companies are currently offering dividends that knock spots off the interest you can get from cash or bonds.

In this festive series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.

Today, it’s the turn of Imperial Tobacco Group (LSE: IMT) (NASDAQOTH: ITYBY.US).

Should you invest £1,000 in Imperial Brands right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Imperial Brands made the list?

See the 6 stocks

Dividends past

The table below shows Imperial Tobacco’s five-year earnings and dividend record.

  2008/9 2009/10 2010/11 2011/12 2012/13
Adjusted EPS 161.8p 178.8p 188.0p 201.0p 210.7p
Dividend per share 73.0p 84.3p 95.1p 105.6p 116.4p
Dividend growth 15.7% 15.5% 12.8% 11.0% 10.2%

As you can see, Imperial Tobacco has delivered overall excellent dividend growth across the last five years. The average annual increase works out at a very impressive 13% — way ahead of inflation.

However, as you’ve also probably spotted, the rate of dividend growth has decelerated year on year. Nevertheless, the 10.2% rise for 2012/13 is still far better than most companies have been able to deliver.

Imperial Tobacco paid a total of 474.4p a share in dividends over the five years, covered twice by ‘adjusted’ (underlying) EPS of 940.3p. For the most recent year, dividend cover was a little lower — but still healthy — at 1.8.

An excellent dividend performance, although the company has been increasing dividends somewhat faster than earnings.

Dividends present

Imperial Tobacco has an unusual 30 September financial year-end. As such, the 2012/13 results are in, but the 2013/14 year isn’t yet underway as far as dividends are concerned.

At a share price of 2,267, Imperial Tobacco’s 2012/13 dividend of 116.4p represents a yield of 5.1%.

Dividends yet to come

Analysts are forecasting Imperial Tobacco’s dividend to rise by 9.5% to 127.5p for 2014/15. However, the company itself has said: “Our intention is to grow dividends ahead of adjusted earnings and by at least 10% per year over the medium term”. That would suggest a dividend of at least 128p.

Either way, analyst EPS forecasts of 216p (up 2.5% on 2012/13) would see dividend cover fall to around 1.7. Note, though, that this is the result of the company’s express intention to grow dividends ahead of earnings.

Imperial Tobacco’s target of at least 10% annual dividend growth could be achieved in the near term with no earnings growth at all, but by simply reducing dividend cover to the 1.5 level maintained by rival British American Tobacco.

Imperial Tobacco already offers a higher yield than British American Tobacco, so there would appear to be no compelling reason for Imperial Tobacco’s management to offer a carrot of double-digit dividend growth into the bargain — and not just for the immediate future, but “over the medium term” — other than supreme confidence in the company’s ability to deliver the earnings increases to support it.

On the face of it, a dividend yield of 5.1% with the prospect of at least 10% growth a year over the medium term is one of the best income deals in the market.

Should you buy Imperial Brands shares today?

Before you decide, please take a moment to review this first.

Because my colleague Mark Rogers – The Motley Fool UK’s Director of Investing – has released this special report.

It’s called ‘5 Stocks for Trying to Build Wealth After 50’.

And it’s yours, free.

Of course, the decade ahead looks hazardous. What with inflation recently hitting 40-year highs, a ‘cost of living crisis’ and threat of a new Cold War, knowing where to invest has never been trickier.

And yet, despite the UK stock market recently hitting a new all-time high, Mark and his team think many shares still trade at a substantial discount, offering savvy investors plenty of potential opportunities to strike.

That’s why now could be an ideal time to secure this valuable investment research.

Mark’s ‘Foolish’ analysts have scoured the markets low and high.

This special report reveals 5 of his favourite long-term ‘Buys’.

Please, don’t make any big decisions before seeing them.

Claim your free copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester does not own any shares mentioned in this article.

More on Investing Articles

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Watches of Switzerland shares 1 year ago is now worth…

Watches of Switzerland shares have been decimated by Trump’s tariffs on Switzerland. Dr James Fox explores whether this is an…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Growth stocks are crashing! Here’s what I’m doing now

Our writer shares his thoughts as growth stocks get crushed, as well as a favourite from the Nasdaq that he…

Read more »

Investing Articles

What’s going on with the Nvidia share price now?

The Nvidia share price is tanking. Once the most valuable listed company, Nvidia has seen more than $1trn wiped off…

Read more »

Investing Articles

This FTSE AIM stock has £2.3bn in net cash, and a market cap of £2.4bn!

I love this FTSE AIM stock, but it really hasn’t delivered for me yet. The stock trades with crazily low…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

Down 15% in a week! Are these 5 FTSE 100 fallers screaming buys as markets plunge?

Five of Harvey Jones's favourite FTSE 100 stocks all have the same thing in common – they've fallen around 15%…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

2 stocks that have been crushed and now offer a ton of value

Edward Sheldon has been scanning the market for stocks that offer value after the sell-off. Here are two shares he…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

£10,000 invested in Aston Martin shares at Christmas is now worth…

Aston Martin shares have fallen from above £10 in early 2020 to pennies today. Is this the perfect time for…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

Up 5% in the last crazy week! Are these 2 income stocks the ultimate FTSE defensive plays?

Harvey Jones picks out two FTSE 100 dividend income stocks that have actually climbed while stock markets are heading in…

Read more »