The UK State Pension currently pays £12,570 a year. But sadly for most people, that simply isn’t enough to retire comfortably.
That’s why so many investors turn to the FTSE 100 to build retirement wealth and passive income streams. And right now 15 of its constituents are paying dividend yields of 5% or more.
Among these stands Imperial Brands (LSE:IMB) with a dividend per share of 163.5p and a 5.9% yield. At this level of payout, an investor would just need to buy 7,673 shares to almost perfectly match the State Pension. But that still translates into a substantial investment.
So is this actually a good idea? Let’s find out.
Tobacco, transformation, and a £2.2bn cash machine
Tobacco’s an industry nobody pretends is growing. Yet despite this, Imperial Brands is finding new ways to maintain and generate extraordinary volumes of cash year after year, regardless of the economic cycle.
Looking at the latest trading update, management reiterated its full-year guidance for low-single-digit growth from its core tobacco business. But the more exciting projection was the expected double-digit growth from its combustion-free Next Generation Products (NGPs) in Europe. And as such, free cash flow is expected to reach at least £2.2bn for the full year.
That cash is being put to powerful use. The company’s already completed £700m of its ongoing £1.45bn share buyback programme, creating structural support for its share price. And with even more buybacks planned between now and 2030, this trend looks set to continue for the foreseeable future.
The NGP momentum’s particularly encouraging. Heated tobacco Pulze 3.0’s gaining traction in Italy and Greece, its Zone brand’s maintaining volume share in the US, while new flavour launches and a fresh Malibu cigarette brand are expected to drive more growth acceleration in the second half of 2026.
So far, this all sounds rather promising. So…
Is there anything to worry about?
Even with encouraging progress, there’s no denying the structural headwinds. Combustible volumes are declining at a low-single-digit rate year after year. And that’s unlikely to reverse. Management’s push into NGPs is a direct response to this long-term trend, but even here there have been some hiccups.
For example, in the US, heightened promotional activity has depressed NGP net revenues while also compressing profit margins. Meanwhile, the firm suffered a $200m blow following a Delaware Supreme Court ruling that has quietly dented the group’s cash buffer, with a further $234m payable in instalments over the next three years.
It goes to show that while Imperial Brands is gradually moving away from traditional cigarettes, there remains a significant legal risk from its legacy products.
What’s the verdict?
The tobacco industry may be shrinking, but Imperial Brands is shrinking it profitably, converting declining volumes into rising cash flow through disciplined pricing power. And it’s using this income to invest in less harmful products for the future.
Obviously, there are glaring moral and ethical hangups about investing in tobacco stocks. And it’s why I haven’t pulled the trigger. But for investors looking for a sizeable passive income, Imperial Brands does appear to be offering a generous and, so far, sustainable payout worth mulling.
Should you invest £5,000 in Imperial Brands Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Imperial Brands Plc made the list?
Zaven Boyrazian does not hold any positions in the companies mentioned.
