Interested In Imperial Brands' (LON:IMB) Upcoming UK£0.22 Dividend? You Have Four Days Left

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Imperial Brands PLC (LON:IMB) is about to go ex-dividend in just four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Imperial Brands' shares on or after the 17th of August will not receive the dividend, which will be paid on the 29th of September.

The company's next dividend payment will be UK£0.22 per share, and in the last 12 months, the company paid a total of UK£1.42 per share. Looking at the last 12 months of distributions, Imperial Brands has a trailing yield of approximately 7.8% on its current stock price of £18.08. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Imperial Brands

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 80% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be worried about the risk of a drop in earnings. A useful secondary check can be to evaluate whether Imperial Brands generated enough free cash flow to afford its dividend. Over the last year it paid out 60% of its free cash flow as dividends, within the usual range for most companies.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Imperial Brands, with earnings per share up 4.8% on average over the last five years. A high payout ratio of 80% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Imperial Brands could be signalling that its future growth prospects are thin.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Imperial Brands has lifted its dividend by approximately 3.0% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Has Imperial Brands got what it takes to maintain its dividend payments? Earnings per share have been growing modestly and Imperial Brands paid out a bit over half of its earnings and free cash flow last year. In summary, it's hard to get excited about Imperial Brands from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Imperial Brands, you should know about the other risks facing this business. For example, we've found 2 warning signs for Imperial Brands that we recommend you consider before investing in the business.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.