Imperial Brands PLC (LON:IMB) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Imperial Brands' shares before the 20th of February in order to receive the dividend, which the company will pay on the 31st of March.

The company's upcoming dividend is UK£0.5426 a share, following on from the last 12 months, when the company distributed a total of UK£1.53 per share to shareholders. Looking at the last 12 months of distributions, Imperial Brands has a trailing yield of approximately 5.5% on its current stock price of UK£27.92. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Imperial Brands

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Imperial Brands paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 44% of the free cash flow it generated, which is a comfortable payout ratio.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.LSE:IMB Historic Dividend February 15th 2025

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Imperial Brands has grown its earnings rapidly, up 25% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Imperial Brands could have strong prospects for future increases to the dividend.

Story Continues

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Imperial Brands has delivered an average of 1.8% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Imperial Brands is keeping back more of its profits to grow the business.

The Bottom Line

Is Imperial Brands worth buying for its dividend? Imperial Brands's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. There's a lot to like about Imperial Brands, and we would prioritise taking a closer look at it.

In light of that, while Imperial Brands has an appealing dividend, it's worth knowing the risks involved with this stock. We've identified 3 warning signs with Imperial Brands (at least 1 which is a bit concerning), and understanding these should be part of your investment process.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

View Comments