Throughout the past decade, Imperial Brands (LSE:IMB) has continually paid out a dividend to shareholders. The dividend yield‘s fluctuated over the years, but currently sits at a very healthy 6.66%. Yet based on the dividend forecasts, this could be set to increase in coming period. Here’s the lowdown.
Income history
The firm typically pays out four dividends a year. Usually, the one paid at the end of the year and the one paid in Q1 are larger than the other two. Over the past year, the sum of the four added up to 146.82p per share. When I factor in the current share price, I can then calculate the yield of 6.66%.
So far this year, two dividends have already been paid. The expectation is that the total for the financial year will be 153.30p. As for the 2025 financial year, a further increase to 160.77p is forecasted.
Obviously, I don’t know where the share price will be in the coming years. But to get a feel for the potential yield, I can use the current price of 2,240p. This would equate to a yield of 6.84% and 7.17% respectively.
Stock surging with momentum
One factor that might weigh the yield down is an increase in the share price. For example, over the past year the stock’s risen by 28%.
Clearly, the increase in the share price shows the business is doing well. The push towards the Next Generation products is clear, with the latest half-year results showing a 16.8% increase in net revenue in this area versus the same time last year. Strong cash flow enabled not only a 4% dividend per share increase, but also the continuation of a £1.1bn share buyback.
The slight downside to the stock rallying is that if this continues, it could act to cut the dividend yield. Even though the dividend per share’s forecast to rise, if the stock jumps another 28% then the yield would fall.
If anything, this probably encourages me to buy sooner rather than later!
Managing the risks
The main risk I see is that traditional tobacco volumes could fall at a faster-than-forecasted rate in coming years. The firm’s trying to counteract this by raising prices. For example, in the latest results, net tobacco revenue was up 2.3%, because although volume fell by 6.3%, prices rose by 8.6%. However, this is unlikely to be sustainable for years to come.
Yet even with this, the pivot to vapes and similar products should allow Imperial Brands to keep up the income payments. After all, the shift away from traditional products isn’t new. Yet over the past decade, the business has easily been able to keep the dividends up, hence why I refer to it as being a dependable option.
I’m thinking about adding it to my income portfolio when I get some free cash.
