Imperial Brands Drops Dividend Growth Target, Plans $251m Share Buyback
British tobacco company Imperial Brands Plc will from next year drop its 10% dividend growth target to focus on developing its e-cigarette portfolio and plans to buy back shares worth up to £200 million (€223.2 million).
The company said on Monday that it would increase its dividend payouts annually, but through a more progressive dividend policy that would take into account underlying business performance.
The move comes as the Davidoff and Gauloises cigarette maker tries to grab a bigger piece of an e-cigarette market dominated by Altria-backed Juul Inc. The company expects its vaping products, mainly blu e-cigarettes, to be one of its key revenue drivers and add to profits next year.
While sales of traditional cigarettes have been declining in developed markets, e-cigarettes have also come under regulatory scrutiny following a surge in teenage use of the devices.
The company's shares, which have tumbled more than 17% so far this year as the wider industry suffered from an increased investor focus on ethical investments, rose 2.2% to be the top gainer on the FTSE 100 on Monday.
"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," analysts at Hargreaves Lansdown said in a note.
Imperial said the new dividend policy would allow investment in both organic growth and M&A opportunities in tobacco and vaping products and help it reduce debt.
"Given IMB's valuation, we do not believe the market was rewarding its current dividend policy and view the change as an opportunistic opportunity to reduce leverage and buy back shares at depressed levels," Credit Suisse analysts said in a note.
The company also said its plan to sell its global premium cigar business in a bid to shed assets worth £2 billion (€2.23 billion) by May 2020 was on track and that it was looking at delivering a net debt to core earnings ratio of 2 - 2.5 times.