Imperial Brands (LON:IMB) Has Announced A Dividend Of £0.5426

The board of Imperial Brands PLC (LON:IMB) has announced that it will pay a dividend of £0.5426 per share on the 31st of March. The payment will take the dividend yield to 5.6%, which is in line with the average for the industry.

View 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 quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 11.8%. If the dividend continues on this path, the payout ratio could be 43% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2015, the annual payment back then was £1.28, compared to the most recent full-year payment of £1.53. This means that it has been growing its distributions at 1.8% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Dividend Looks Likely To Grow

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 25% per year over the past five years. The company's earnings per share has grown rapidly in recent years, and it has a good balance between reinvesting and paying dividends to shareholders, so we think that Imperial Brands could prove to be a strong dividend payer.

Imperial Brands Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. 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 in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 3 warning signs for Imperial Brands (of which 1 can't be ignored!) you should know about. 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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