After a solid set of results, is it time to buy this FTSE 100 dividend giant?

I’ve been looking at FTSE 100 tobacco giant Imperial Brands after it posted impressive full-year results yesterday.

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It’s been a rough week for stocks on the FTSE 100 but the UK’s second-largest tobacco giant decided to buck the trend. 

Imperial Brands (LSE: IMB) was up 3% when markets closed yesterday (19 November), helped by a strong set of results for the full year 2024.

Created with Highcharts 11.4.3Imperial Brands Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

The company saw a 4.6% rise in net revenue for tobacco and next-gen products (NGP), with a 19.1% jump in reported earnings per share (EPS). Operating profit increased 4.5% to £3.55bn from £3.4bn last year.

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The big news that likely spurred the price growth was a 4.5% increase in its dividend, up from 146.8p to 153.4p per share. It reinforces the company’s long track record of solid dividend growth. Prior to Covid, dividends were increased by 10% on average a year — a figure it’s working towards reinstating.

The company’s share buyback programme continues unabated, with a further £1.25bn of shares purchased. Chief executive Stefan Bomhard commented on the progress, saying the company’s on track to deliver five-year capital returns of £10bn. 

This represents 67% of market capitalisation since the strategy launched in January 2021.

A controversial choice

Results aside, tobacco remains a controversial topic and a risky investment in a declining industry. Stricter regulations are being imposed on the industry with alarming frequency. Many cities around the world have already banned smoking completely in public spaces and strict new regulations in the UK are limiting sales.

Tobacco companies are scrambling to advance next-gen products like vapes and nicotine gummies. But even these ‘smokeless’ alternatives have been criticised. The UK government recently proposed a new bill to outlaw vape advertising and sponsorship in an effort to limit youth adoption. Disposable vapes will already be banned from June next year, citing environmental and health concerns. 

How long will it be before these next-gen products are banned altogether?

The World Health Organisation (WHO) reports that by next year, tobacco use globally will have reduced 25% since 2010. While this still falls short of the 30% goal it was aiming for, it’s a significant improvement. Eventually, it may be phased out completely.

Better the devil you know

Health-conscious investors, especially those with children, tend to avoid tobacco stocks. Many would like to see the industry outlawed entirely. But if prohibition taught us anything, banning products does little to reduce their harm. Some feel that pushing tobacco underground could put production in the hands of cartels, making it more dangerous.

To address these concerns, Imperial has been working on modernisation efforts. These include new innovation hubs in Liverpool, Hamburg, and Shenzhen, as well as efficiency measures to reinvest in growth areas​. It also expanded its NGP offerings in heated tobacco, vape, and oral nicotine across Europe and the US, with a focus on market trials for top products like Pulze and Blu​.

Overall, I think Imperial Brands is a stable and reliable dividend payer that’s worth considering as part of an income portfolio. However, I don’t plan to buy the stock as I don’t feel it would fit into my long-term vision.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Mark Hartley has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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