The Motley Fool

I’d buy Imperial Brands shares right now for its astonishing 10% yield

Image source: Getty Images.

The Imperial Brands Group (LSE: IMB) share price has jumped around 6% today after new boss Stefan Bomhard said tobacco volumes and revenues are coming in ahead of expectations following a difficult year.

Today’s full-year results to 30 September came as welcome respite to investors in the FTSE 100 tobacco giant. Its shares have more than halved over the last four years while the dividend was slashed in May. Its future looks brighter as it pays down debt, and I would buy it for a balanced income-generating portfolio today.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Shares in Imperial Brands are on the up after it reported a 0.8% rise in full-year adjusted group revenue to £7.98bn. Tobacco revenues rose 1.8% albeit with a weaker mix, while adjusted operating profit fell 4.8% to £3.52bn. Bomhard hailed the group’s “resilience” in a difficult year.

Still smoking

Today’s final results predicted low-to-mid single digit growth in organic adjusted operating profit for 2021, excluding the impact of the sale of its premium cigar business.

Imperial Brands shares tumbled last September as earnings flattened and US states cracked down on vaping, following deaths and illnesses. It also issued a profit warning in February. There was further bad news in May, when the board re-based its dividend, cutting the payout by a third to save cash amid flat tobacco sales and falling vaping revenues.

Investors won’t be complaining too loudly, given they still get a market-thrashing yield. Right now, Imperial Brands shares yields an incredible 10%, covered 1.8 times by earnings. I can’t see many better income shares around right now.

The pandemic hit duty free sales, following the collapse of international travel. It did offer one consolation, though, as tobacco smuggling fell. These two trends are likely to reverse, once we find a way out of the pandemic, although I do not expect travel to spring back that quickly.

Imperial Brands shares may stagnate

Anybody buying tobacco shares must accept this is a declining market, as smoking slowly but steadily dies out. There is still a long way to go and a lot of sticks will be sold in that time. Boosting market share helps, and the group grew its share in three of its top five markets last year. Imperial Brands should continue to generate plenty of cash to fund its dividend payouts. 

Future sales declines seems to be fully priced in, with the group’s shares now trading at just 5.3 times forward earnings. City analysts expect those earnings to rise by a steady 4% next year.

In another piece of good news for the group, adjusted net debt is falling. It now stands at £10.3bn, around £1bn lower than last year, helped by the disposal of its Premium Cigar arm. The strategic review in January should provide more clarity.

In a tough year for income seekers, shares in Imperial Brands look attractive. I would buy them for that mighty income, not so much for the growth.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Harvey Jones 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.