ESG advocates close your ears, but Imperial Brands PLC (LSE:IMB) has proven once again that Big Tobacco stocks are among the best income generators on the market.
Not only does the owner of Golden Virginia and Davidoff have an estimated 7% dividend yield, but it is also on track to repurchase another 7% of its outstanding shares through newly announced buybacks.
Rounding out a tidy 7-7-7, Panmure Liberum analysts noted that Imperial’s share price is currently trading at around seven times earnings. Analysts see this as “hugely undervalued”.
Such is Imperial’s appetite for buybacks, that according to Panmure: “Repurchases to date have retired 11.2% of the opening share count, or put another way, in two years Imperial has bought more shares than are owned by all but one of its institutional shareholders.”
This shrinking equity base and progressive dividend policy are thanks to what Panmure Liberum analysts call “prodigious” cash generation from the sale of combustibles and, increasingly, nicotine-free next-generation products (NGPs).
Although NGPs – being the array of vapes, heated products and pouches that Imperial sells – remain a loss-making segment, these losses continue to narrow while sales continue to enjoy double-digit growth.
The wider group remains highly profitable regardless. “This is the result of continued strong pricing in cigarettes (once again belying the siren voices that cigarette pricing is ‘over),” said Panmure.
All in all, “the company is doing everything right”, reckon Panmure analysts. Not that ESG advocates would agree.
Imperial’s share price bounced 3.8% higher on Tuesday.