Imperial Brands (LSE: IMB) has settled into a quietly powerful groove, more than justifying its position among my core long-term income shares.
Although not ethically to everyone’s taste, it sits in a familiar ‘Big Tobacco’ niche. This features modest but steady growth, strong cash generation, and robust dividends that are forecast to rise.
Management’s disciplined buybacks add another layer of shareholder value, helping lift the share price over the past year. More may be to come, given its low relative valuations.
Given these factors, how much retirement income could my holding in this stock realistically produce?
Strong business fundamentals
Consistent earnings (‘profits’) growth enables robust cash generation, which in turn is crucial for supporting dividend increases.
A risk to Imperial Brands is any misstep in its transition to smokeless nicotine substitutes. This could allow competitors doing the same thing to gain an advantage, thus squeezing its margins.
However, consensus analysts’ forecasts are that earnings will grow by 4% a year to end-2028. This looks well-supported by the firm’s recent sets of results.
Its full-year 2025 numbers released on 18 November showed a 4.6% year-on-year rise in adjusted operating profit to £3.99bn. This was slightly ahead of consensus estimates of £3.98bn.
Free cash flow jumped 12% to £2.7bn from £2.4bn previously, while adjusted earnings per share increased 9.1% to 315p.
Having returned £10bn to shareholders from 2021-2025 through dividends and buybacks, the firm announced another £1.45bn share buyback for 2026.
The company expects 2026 adjusted operating profit growth in the 3%-5% range.
Analysts’ rising dividend forecasts
Imperial Brands has raised its dividend from 139.08p in 2021 to 160.32p in 2025.
From the beginning of that five-year period, this resulted in annual average dividend yields of 8.9%, 7.6%, 8.8%, 7.1%, and 5.1%.
Currently, the dividend yield is 5.3%, based on the 160.32p payout and the £30.49 share price.
This compares very favourably with the present FTSE 100 average of 3.1%.
However, analysts forecast Imperial Brands’ dividend yield will increase to 5.6% this year, 5.9% next year, and to 6.2% in 2028.
How much income can it generate?
My £20,000 holding in Imperial Brands could make me £17,119 in dividends after 10 years.
This is based on an average 6.2% dividend yield, although this can also fall over time. It also assumes the dividends are reinvested into the stock to harness the enormous power of ‘dividend compounding’.
On the same basis, the payouts could rise to £107,861 over 30 years. At that point, including the £20,000 original investment, the holding would be worth £127,861.
That would give me £7,927 a year in income from dividends — a great boost to the UK State pension.
My investment view
I think my holding in the firm is currently sufficient, given the overall risk-reward balance of my portfolio.
However, I do think its strong income potential, supported by solid earnings growth and strong free cash flow, should drive rising dividends over time.
Low relative stock valuations may also keep driving share price gains too. Its 1.3 price-to-sales ratio is bottom of its peer group, which averages 4.5. This comprises Japan Tobacco at 3, British American Tobacco at 3.6, Altria at 5, and Philip Morris at 6.5.
Its 11.5 price-to-earnings ratio also looks very cheap compared to its competitors’ average of 22.6.
