The Imperial Brands (LSE:IMB) share price has lost nearly 15% in the past 12 months. Looking back further than the last year, it has lost over 50%. At its current price point, is now a good time for me to buy shares in the FTSE 100 stock or should I steer clear?
Industry powerhouse
Imperial Brands is a powerhouse in the tobacco industry. The FTSE 100 stalwart has been around for over 100 years. It is currently the world’s fourth-largest tobacco company. As an employer of over 27,000 people, it has approximately 38 factories worldwide and sells over 300bn cigarettes a year. Some of its well known brands include Davidoff, Rizla, and Winston.
Developing countries seem to have higher demand for tobacco products compared to developed countries. Imperial Brands’ biggest market is China. Smoking is highly addictive, however, so there will almost always be a demand in my opinion. Fortunately, I am an ex-smoker who managed to kick the habit. That doesn’t mean to say I don’t like tobacco brands as an investment. This FTSE 100 stock may not be one for ethical or environmentally friendly investors.
Share price continues to fall
At this time last year, the Imperial Brands share price was trading for over 1,730p per share. As I write, it is under 1,490p per share. As a Foolish investor, looking at the long term, I would focus on a longer time period. Let’s face it, the last 12 months have been a whirlwind with Covid-19 and the FTSE 100 crashing.
Five years ago, the Imperial Brands share price was trading for over 3,750p per share. That’s almost 60% higher than current levels. There are a few reasons that could account for this. Firstly, the tobacco industry has almost become a no-go zone in recent times as people look to invest ethically and with a thought for the environment. This impacts share price.
Next, there is always the threat of tighter regulations and restrictions. Just last week, a report emerged that suggested the new Biden-led US government are going to introduce tighter restrictions and regulations on nicotine. The US is a huge market for IMB. These potential threats occur every so often and share prices decline because of them. This news also affected the British American Tobacco share price, which is also on the FTSE 100.
FTSE 100 opportunity?
There are a lot of things I really like about Imperial Brands. Firstly, its price-to-earnings ratio is over 9 and has an earnings yield of over 10%. Dividends are king in my opinion and Imperial has a dividend yield of over 9%, which is one of the best on the FTSE 100. Due to massive cash flow it can pay quarterly dividends which is great for income investors like myself.
There are drawbacks to Imperial too. It’s products are harmful and can kill some users. Imperial does have a high debt level but this doesn’t concern me personally based on the substantial income it generates as well as its stellar credit rating.
As an income investor, Imperial Brands is one of the best income investments on the FTSE 100 in my opinion. This is why I believe at its current price point it represents a good opportunity for me.
