Imperial Brands' (LON:IMB) Dividend Will Be Increased To UK£0.21

The board of Imperial Brands PLC (LON:IMB) has announced that it will be increasing its dividend by 1.0% on the 30th of September to UK£0.21. This will take the dividend yield from 9.0% to 9.0%, providing a nice boost to shareholder returns.

View our latest analysis for Imperial Brands

Imperial Brands' Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Imperial Brands' dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

EPS is set to fall by 28.0% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 68%, which is comfortable for the company to continue in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2011, the first annual payment was UK£0.84, compared to the most recent full-year payment of UK£1.38. This means that it has been growing its distributions at 5.0% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Imperial Brands has impressed us by growing EPS at 20% 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, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 3 warning signs for Imperial Brands (of which 1 is concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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