Imperial Brands' (LON:IMB) Dividend Will Be Increased To £0.5426

Imperial Brands PLC (LON:IMB) will increase its dividend from last year's comparable payment on the 31st of December to £0.5426. This takes the annual payment to 6.7% of the current stock price, which is about average for the industry.

See our latest analysis for Imperial Brands

Imperial Brands' Payment Could Potentially Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Imperial Brands' dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

The next year is set to see EPS grow by 16.5%. If the dividend continues on this path, the payout ratio could be 52% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the dividend has gone from £1.16 total annually to £1.53. This implies that the company grew its distributions at a yearly rate of about 2.8% over that duration. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

We Could See Imperial Brands' Dividend Growing

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Imperial Brands has grown earnings per share at 8.8% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

We Really Like Imperial Brands' Dividend

Overall, a dividend increase is always good, and we think that Imperial Brands is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for Imperial Brands that investors should know about before committing capital to this stock. Is Imperial Brands not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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