It is not often that the Imperial Brands (LSE: IMB) share price tops the FTSE 100 list of risers. So when it did today, I took note. Especially because it is one of my portfolio stocks. The increase is not massive at 3%, when I write this Wednesday afternoon. But on a muted trading day, it does stand out.
Imperial Brands share price rises on positive trading update
I did not have to look hard to find the reason for the run-up in the Imperial Brands’ share price. The company released its trading update earlier in the day, which has a few positives. For one, its adjusted operating profit for the first-half of this year, ending 31 March, is ahead of that last year.
Rising profits are good news for any company. But I believe they are particularly so for those with significant dividend payouts. And Imperial Brands is one of them. At present, its dividend yield is a pretty big 8.6%, making it among the biggest dividend payers across FTSE 100 constituents. To put it in perspective, the average FTSE 100 yield is 3.5% right now.
High and stable dividend yield
Of course a high dividend yield today does not necessarily mean very much if it might be gone tomorrow. As we have seen in the unfortunate case of the Russian miner and steel manufacturer Evraz, which until recently boasted of the biggest dividend yield among all FTSE 100 stocks.
But the tobacco manufacturer in question wins points on dividend stability too. Over the past five years, its dividend yield has averaged 8%. And it has also consistently paid dividends for a really long time. The fact that it is in the consumer defensives’ segment helps as well. Smokers are not inclined to quit in a hurry, so even during slowdowns, companies like Imperial Brands are likely to continue raking in the money.
Future in flux
The big challenge on the horizon for such stocks, however, is the shift in consumer preferences. There is ever growing awareness of the health risks that smoking carries. In line with this, demand for tobacco has started falling in some markets. So far, tobacco alternatives have not quite made a big dent either. This makes investors like me wonder what is next for the company.
Imperial Brands’ trading update does make me optimistic, however, since it says that its next generation products’ (NGP) trials are working well. In its last financial year, the company has reported mixed performance from the segment. While its revenues grew in Europe, they fell elsewhere. Even in Europe, it still forms a minuscule part of its total revenues.
What I’d do
This means that there are no easy forecasts for the company’s growth in say, the next 10 years. But at present, it is still a profitable and growing company that earns me a solid passive income. I expect that it will sustain that for the next few years. As such, I am positive on the Imperial Brands share price and could add to my holdings of the stock now.
