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I’m always on the hunt for a cut-price dividend stock paying a punchy rate of income, and I think this one’s well worth considering.
Shares in FTSE 100 tobacco giant Imperial Brands (LSE: IMB) have slipped 15% in recent months, from a high of 3,340p in February to 2,843p today. Yet it still offers a juicy dividend yield of almost 6%, trades on a price-to-earnings (P/E) ratio below nine, and boasts a long record of rewarding shareholders.
The shares are up around 68% over five years, offering capital growth as well as income. Can they get moving again?
Imperial Brands is an income hero
Imperial Brands has a terrific dividend track record, increasing shareholder payouts every year this millennium bar one, when it slashed the payout by a third during the 2020 pandemic. It’s since rebuilt its reputation as an income stock, with a forecast yield of 5.92% for 2026 and 6.23% in 2027.
In 2025, free cash flow rose more than 12% to £2.7bn, giving management room to fund dividends, invest in the business and buy back its own shares.
Imperial reaffirmed its full-year guidance in October, targeting adjusted operating profit growth of 3%-5%, and is lining up a £1.5bn share buyback.
FTSE 100 recovery stock
The shares have picked up a little in recent days but according to brokers, there could be more to come. Deutsche Bank and Jefferies have both set one-year share price targets of 3,500p. If they’re right, that would represents a gain of around 23% from today, with dividends on top. That would make a superb total return.
The brokers argue that Imperial’s strong cash generation, disciplined capital returns and progress in next-generation products could help offset the gradual decline in traditional cigarette volumes.
Total net revenue rose 4.1% at constant exchange rates to £8.3bn, despite a 1.7% drop in traditional cigarette sales. Revenue from next-generation products, including blu vapes, Pulze heated tobacco, and Zone nicotine pouches, grew at a more impressive 13.7% to £368m. While they’re helping to offset falling stick volumes, next-generation products remain a small part of the business.
Regulations and other risks
Investors shouldn’t get too carried away by that low P/E. It tends to be low, reflecting the long-term decline in smoking, the intensely competitive market, especially in vapes and alternatives, and constant threats of regulation and class action lawsuits from customers. Its recent share price slip suggests that investors remain cautious about its prospects.
As a result of that high dividend income and low entry price, I think it’s well worth considering for long-term investors prioritising income. Not everyone’s comfortable investing in Big Tobacco, including me, but that’s not a problem as there are other great income stocks on the FTSE 100 today. I’ve got my eyes on one that now yields almost 7%…
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Harvey Jones does not hold any positions in the companies mentioned.
This story originally appeared on Motley Fool
