Imperial Brands (LSE: IMB) remains one of the FTSE 100’s heavyweight dividend payers, offering a yield that dwarfs most of the index.
A risk here is any sustained strengthening of the British pound. This would cut the sterling value of profits in any of its key overseas markets, most notably the US. Another would be supply-chain disruptions that could affect production and squeeze margins.
That said, it remains a cash‑rich business with disciplined payouts that make it a rare source of dependable income. And analysts forecast its earnings will rise by a solid 4% over the medium term, underpinning these returns.
So, how much could investors make from the stock over time?
Rising dividend yields forecast
Imperials Brands’ current dividend yield is 5.8%, compared to the FTSE 100’s average of just 3.1%.
However, analysts forecast that it will lift its annual payouts to 168.8p this year, 177.3p next year, and 186.8p in 2028. These would give respective annual dividend yields of 6.1%, 6.4%, 6.7%.
The rising trend in its dividends has been a feature of the firm for years. Since 2021, for example, it has increased its yearly payout from 139.08p to 160.32p in 2025. These generated average annual dividend yields of 8.9%, 7.6%, 8.8%, 7.1%, and 5.1%.
The drop in dividend yield, despite the rising payouts, illustrates that these returns can change over time.
How much dividend income?
A £20,000 holding (the same as mine) would buy around 719 shares in Imperial Brands at today’s price.
After 10 years on the forecast 6.7% yield, investors would make £19,012 and after 30 years £128,434. This assumes that the dividends would be reinvested in the stock to utilise the turbocharging effect of dividend compounding.
At the end of the 30-year period, the total value of the holding would be £148,434 (including the initial £20,000).
And that would generate an annual income of £9,945.
Share price gains too?
All the stocks I buy primarily for their high dividend yield also look deeply discounted to their ‘fair value’. This encompasses the true worth of the underlying business, while price is just whatever the market will pay at any point.
Crucially for investors, share prices tend to move toward their fair value over the long run. So understanding the difference between the two measures — and quantifying the difference — is critical to maximising long-term profits.
My discounted cash flow analysis (including an assumed 9% discount rate) shows Imperial Brands’ shares are 44% undervalued at their current £27.83 price. Other analysts’ DCF modelling may be more bearish, along with the key assumptions used.
But my DCF result suggests a fair value for the stock of around £49.70 — much higher than today’s price.
So that price-to-value gap suggests a potentially superb buying opportunity to consider today if those DCF assumptions prove accurate.
My investment view
Imperial Brands offers a rare blend of high income, steady dividend growth, and deeply-discounted valuation, in my view. I think the stock well worth of consideration by savvy, long-term income investors.
I will certainly be adding to my holding in the firm shortly. And I also have my eye on other high-yield stocks that look seriously undervalued too.
