US Edition Imperial Tobacco
£20.60 -71p
Questor says BUY
Of course, it is impossible to time a market top or bottom, that's why drip-feeding money into falls is a good idea – providing you pick quality companies.
If you can buy high-yielding share in a broad-based sell-off – when good shares are dragged lower with bad shares – then you can reap the benefits for many years to come. Reinvesting dividends is a sensible investment strategy that can grow your wealth substantially over time.
Imperial Tobacco fits this bill.
At a recent investor day, management said tobacco is becoming more like other fast-moving consumer goods (FMCG) categories. They said smokers increasingly smoke a repertoire of brands in Western Europe, with a main brand and two others used on different occasions.
In the UK, 33pc of smokers smoke both roll-your-own and factory-made cigarettes.
The company is also developing a new marketing strategy. Roberto Funari was appointed marketing director in November and Arthur van Benthem became sales director in March. Once the new strategy is in place, top-line growth looks achievable.
In Spain, a price war has been going on that is hurting all participants. Imperial estimates that adjusted operating profits from Spain could fall by a maximum of £70m.
Including Spain, tobacco net revenues increased by 2pc in the third quarter and 4pc when Spain is included. Total cigarette stick volumes fell 2pc, but rolling tobacco volumes rose 4pc.
Earlier this year, Imperial unveiled a 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 shares are now yielding 4.6pc, rising to 5.2pc next year. The current-year earnings multiple is 10.8, falling to 9.8 next year.
The shares were first recommended as a buy on November 30, 2008 at £16.18 a share. They are now up 28pc compared with a market up 18pc. The average price target of 18 City analysts that are monitored by Bloomberg is £24.02.
The shares are still a buy.