Imperial Brands revises dividend policy, announces ?200m share buyback
By Michele Maatouk
Date: Monday 08 Jul 2019
(Sharecast News) - Imperial Brands announced a share buyback worth up to £200m on Monday as it said it was revising its dividend policy.
The tobacco company reaffirmed its 10% dividend growth for the current financial year and said the revised dividend policy thereafter will be progressive, growing annually from the current level, taking into account the performance of the underlying business.
"This new policy recognises the company's continued strong cash generation and the importance of growing dividends for shareholders, while providing greater flexibility in capital allocation," it said.
The new dividend policy is part of a wider review of capital allocation priorities, which will also see the group return up to £200m to shareholders before the end of the year via a share buyback.
The company said it was on track to realise proceeds of up to £2bn before May 2020 and will assess the most appropriate use of proceeds at the time, including debt reduction and share buybacks. It also pointed to gearing within a net debt/EBITDA range of 2-2.5 times.
At 0850 BST, the shares were up 2.5% at 2,009p.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "Imperial Brands' large, stable and growing dividend has been the stock's main attraction for decades. Recently though that hasn't been enough to support the share price, which is down over 50% since 2016 despite dividends rising by 10% a year. With the dividend yield now over 10%, management have clearly decided enough is enough, and while payments to shareholders will continue to grow going forwards, share buybacks and debt reduction have moved up the list of priorities.
"All this makes sense, a double digit dividend yield is more than any investor needs or can reasonably expect in the current climate, and throwing more money at shareholders has failed to make the shares more attractive. Buying back shares has become a cheaper option, with significant benefits for the remaining shareholders, and debt reduction and growth investments will strengthen the group's long term prospects.
"Today's announcement also highlights an interesting feature of the wider tobacco industry. Increased investor focus on ethical investments seems to be hitting demand for the shares faster than it's turning Imperial's customers off smoking - the share price looks weak even when cash flows remain strong, and Imperial's whopping great yield is the result. That's an anomaly we expect to be around for some time to come."
Broker Liberum said: "We like the revised policy because it should help to restore confidence and credibility to the dividend policy, which is now more realistic and sustainable. It also silences the bears who anticipated a dividend cut.
"We are happy to see Imperial taking steps to buyback £200m worth of shares by the end of this calendar year. We support buybacks only when shares are attractively priced and they currently are, so this is accretive to earnings and most importantly, equity. Imperial's decision to be more opportunistic about share buybacks is great news - it shows that the management team is listening and pursuing shareholder-friendly policies."
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