According to a recent report from investment manager AJ Bell, cash dividends from the FTSE 100 in 2020 are set to fall to their lowest level since 2012.
The FTSE 100’s declining dividends
It forecast total FTSE 100 dividends diving by £18bn – or almost a quarter (24%) – this year, versus 2019. What’s more, AJ Bell revealed that 35 different Footsie members have cancelled, cut, suspended or withheld cash payouts to shareholders during the Covid-19 crisis.
Alas, one big problem for investors today seeking a decent income from FTSE 100 stocks is that some of the giants have dramatically slashed their payouts. These include all of the UK’s leading banks, as well as the biggest oil & gas producers and explorers.
Hence, to replace this dwindling income, many investors are casting their nets wider. This is where multinational tobacco company Imperial Brands (LSE: IMB) comes in. However, as some Imperial products harm its customers, this FTSE 100 stock is a no-no for ethical investors.
But here are four reasons why I think value investors and income seekers should ‘run the rule’ over Imperial shares.
1. This FTSE 100 player has a long pedigree
Bristol-based Imperial has been around for a long time – since 1901, in fact, so it has a 119-year pedigree. In its first year, it saw the death of Queen Victoria and has gone on to survive (and thrive) after two world wars and countless economic downturns. In short, Imperial is a long-established survivor.
2. Imperial has a huge global customer base
As the world’s fourth-largest cigarette maker by market share, Imperial is a global leader. More than 50 factories worldwide churn out almost a third of a trillion cigarettes each year. Also, its various brands are sold in over 160 countries. Thus, this FTSE 100 player has size and scale to spare.
3. The shares have collapsed since 2016
In September 2016, Imperial’s share price peaked at 4,130p. Today, as I said in the headline, they change hands for less than £14 each (just 1,369p, in fact). In other words, they’ve collapsed by 67% in four years. Today, Imperial is worth under £13bn. Sure, its market globally is in a slow and terminal decline, but should this FTSE 100 share really be so unloved today?
4. Imperial pays a delicious dividend
For me, the main attraction of this FTSE 100 stock is the flood of cash paid to shareholders in the form of quarterly cash dividends. On 19 May, Imperial announced a one-third cut in its dividend, so I think the adjusted payout will be safe for some time.
If the yearly dividend does hold at 137.7p, that implies a forward dividend yield of a touch over 10%. In other words, owning this FTSE 100 share entitles you to a quarterly cash payout of 2.5% of your investment.
In summary, a 10% yearly cash dividend is not to be sniffed at. That’s why I would buy and hold this stock – for income and capital growth – until the cows come home!
Cliffdarcy has no position in any of the shares mentioned. 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.