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I’ll hold this 12% FTSE 100 dividend yield in my ISA for at least 5 years!

Right now, there are some fantastic income investments in the FTSE 100, including tobacco company Imperial Brands (LSE: IMB), which currently supports a dividend yield of 12%.

Cash flow king

Ethical considerations aside, I think Imperial has all the hallmarks of an investment you can buy and hold in your Stocks and Shares ISA for the next five or 10 years. 

For a start, the company has a beautiful cash flow profile. In business, cash is king, and Imperial’s operations throw off a hell of a lot of cash. The company’s cash conversion ratio, how much of its net profit is converted into cash, sits at 95%. For the year to the end of September, the group reported a free cash flow of £2.8bn, which was more than enough to cover the £1.8bn cost of the dividend. 

However, some analysts and investors are worried the company isn’t doing enough to diversify away from its rapidly shrinking core tobacco market. The total volume of tobacco sold by the group declined 4.4% for its fiscal year, although the firm managed to offset the bulk of the decline with price hikes. Overall, tobacco net revenue increased 1.1% at constant currency. 

Analysts had been hoping Imperial’s Next Generation Products (NGPs) would pick up the slack, but sales of these products have not lived up to expectations.

New business

The NGP division includes Imperial’s vaping and heated tobacco offerings and management has earmarked millions of additional spending to get these products into the hands of consumers.

Sales grew 48% in constant currency last year, below management’s 50% target, but this division is only just getting off the ground. Imperial is planning more product launches over the next 12 months, and a new investment strategy, focused on “sustainable, profitable growth.

A crackdown on vaping products, after a spate of deaths in the US, may also help the company if smaller players are pushed out of the market due to higher costs. 

Including the contribution from NGP products, Imperial’s overall revenue increased 2.2% at constant currency in its last fiscal year. I think that’s a pretty good result for a company facing a global slowdown in demand for its primary product.

Navigating stormy waters

Tobacco sales around the world have been declining for the past few decades. During this time, Imperial has managed to navigate the environment quite successfully, and investors have been well rewarded. Baring a sudden decision by regulators to ban tobacco outright across Europe and the US (which is always a risk), I think the company has what it takes to continue churning out profits for the next five to 10 years.

I’m particularly excited about its NGP business, and how this will evolve over the next 12-months as Imperial refocuses its efforts on growth in the booming vaping market.

Then there are also the company’s cannabis investments to take into account. Imperial has signed agreements with Auxly Cannabis Group Inc and Oxford Cannabinoid Technologies during the past two years. So far, neither investment has generated any positive returns, but it’s still early days yet.

That’s why I’m planning to hold Imperial for the next five years. The recent share price performance might be disappointing, but over the next five years, I think the company will remain an income champion.

A top income share with a juicy 6% forecast dividend yield

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Our analyst is predicting there’s potential for this company’s market value to soar by at least 50% over the next few years...

He even anticipates that the dividend could grow nicely too — as this much-loved household brand continues to rapidly expand its online business — and reinvent itself for the digital age.

With shares still changing hands at what he believes is an undemanding valuation, now could be the ideal time for patient, income-seeking investors to start building a long-term holding.

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Rupert Hargreaves owns shares in Imperial Brands. The Motley Fool UK has recommended Imperial Brands. 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.