With a fresh ISA allowance to play with, I’m on the hunt for quality dividend stocks. While the passive income they throw off can never be guaranteed, I love the idea of generating a bit of extra cash for simply owning slices of individual companies. And the beauty of holding my shares in this account is that it all comes free of tax.
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Market darling
Tobacco giant Imperial Brands (LSE: IMB) is one stock I’ve got my eye on.
Sure, this business won’t be to all investors’ tastes, in much the same way that people might not want to back defence contractors or gambling firms. However, there can be no doubt that it’s performed marvellously for those willing to own a slice of it for the long term.
Anyone buying this stock five years ago would have pretty much doubled their money. Despite a stunning 2025, the FTSE 100 index in which the £24bn cap features is up ‘just’ 50% in the same period. Again, we have another example of how — with a bit of skill and luck — a regular, private investor can absolutely thrash the market return. Moreover, they don’t necessarily need to get involved in the murky world of penny shares to do so.
Dependable dividend stock
Imperial’s outperformance since the global pandemic has been down to a few factors. These include a successfully-executed turnaround strategy, consistent revenue growth, and the growing popularity of next-generation products including vapes, heated tobacco, and nicotine pouches.
But it’s not just these things that have attracted new investors. Put simply, it’s also been (and remains) a stellar source of income.
Right now, analysts have the company down to return 168p per share to investors in FY26. Using the current share price, that equates to a dividend yield of 5.5%. Again, this puts the index to shame. A FTSE 100 tracker offers around 3%.
An above-average yield can sometimes be the result of a company’s share price tanking, perhaps due to concerns on its outlook. However, we know that’s not the case here. In fact, it’s estimated that Imperial’s distributions will be covered twice by profit this year. Unless we get some news flow that truly shakes market confidence, I reckon investors will get their money.
All this, when combined with a forecast price-to-earnings (P/E) ratio of nine, suggests new owners will be getting quite a lot of bang for their buck. Imperial is also cheaper than its top-tier peer British American Tobacco (P/E of 12).
Just the start of my search
Of course, depending on just one company for passive income is still courting disaster. However reliable it has been in the past, Imperial could run out of puff going forward. I’m wary that traditional tobacco consumption is still falling. There’s no guarantee that its new products will be able to make up for this lost revenue in the long term. Even if they do, a business like this will always be a target for regulators.
With this in mind, I’m going to continue adding companies to my shortlist. With markets looking fragile as the US and Iran attempt to agree on a peace deal that will actually last, now could be a great opportunity to go bargain hunting.
