US Edition Imperial Tobacco
£21.65 -21p
Questor says BUY
The company has announced a new dividend policy and last week's interim results confirmed that the short-term bears had been overstating their case. The sluggish global economy means fears of a price war remain, but the company is performing strongly.
Imperial has also said it would start share buy backs earlier than some had expected. The group will buy £500m shares a year from this year. This has led to some analyst upgrades, as the programme was not expected to start until 2012.
The shares remain a dividend play – although the yield now stands at just 4.4pc, rising to 5pc next year. However, the payout is twice covered by earnings and investors will benefit from the new dividend policy.
The tobacco group will now increase the dividend payout ratio to 50pc of adjusted earnings from this year, up from 47pc. The interim dividend of 28.1p was a 16pc rise and a third of last year's total payout. This will be paid on August 19 and new investors can buy the shares before July 20 to qualify for the payment.
The shares are trading on a September 2011 earnings multiple of 11.2 times, falling to 10.3 next year.
The shares were first recommended as a buy on November 30, 2008, at £16.18 a share. They are now up 34pc compared with a market up 37pc. The average price target of 18 City analysts that are monitored by Bloomberg is £24.32.
The shares remain a buy for income seekers, although some may wish to avoid the sector for ethical reasons.