Looking for stocks to generate passive income, I find so many have been hit by rising inflation and interest rates.
But there are some out there that seem to be largely immune to economic conditions. And some are paying big dividends. Imperial Brands (LSE: IMB) looks like one.
The Imperial Brands share price has fallen 35% over the past five years, presumably because investors don’t think the tobacco industry has a long-term future. But I don’t agree. And seeing a 33% share price gain in the past 12 months, I think the markets are re-evaluating the stock.
Dividend yield
Even after the recent gains, forecasts still put the Imperial Brands dividend yield as high as 7%. Those who managed to buy at Imperial’s low point in March could have locked in close to 10%. And they needed to buy significantly fewer shares to generate the same passive income.
On top of the big dividend, Imperial Brands has recently commenced a £500m share buyback. And a share price boost followed. It should be good for future dividend yields too, as the cash will be spread across fewer shares.
First half
In the first half of the current year, Imperial’s reported figures looked weak. But on an underlying basis, the company saw a 2.9% increase in operating profit, with earnings per share up 7.7%. The interim dividend was lifted 1%.
Chief executive Stefan Bomhard made Imperial’s long-term strategy clear, emphasising its focus on the next generation of tobacco products. He told us: “We are now 18 months into our five-year strategy to build a more sustainable Imperial capable of consistent growth“.
We also heard that “In next generation products, consumers have given positive feedback on our recent trials“, and that new roll-outs will follow.
Risks
Together with the firm’s strong cash flow, this supports my confidence in the long-term dividend. But there are risks.
One is that Imperial carries a fair bit of net debt, at £9.8bn. But that was £1.2bn down on the same period last year. And it represents 2.4 times adjusted EBITDA, which doesn’t seem too onerous. It should come down further by the end of the year, but it is still a concern.
The other risk is the uncertainty of the company’s five-year plan. We’re still in its early days, and refocusing plans do go wrong sometimes.
How much?
To buy those 850 shares, and bag that £100 per month in passive income, how much would I have to shell out? It comes to a little over £17,000, which is not exactly small change. And if I didn’t have it, how else could I get there?
If I invested £100 per month in Imperial Brands shares starting now, I’d be able to accumulate almost the exact sum I need in 10 years.
There are a few assumptions there. That the annual total return remains the same at 7% per year, and that I reinvest all dividends in more shares. But it could be a good way of turning surplus cash that I don’t need today into passive income for the future.
The post I’d buy 850 shares of this stock, for £100 in monthly passive income appeared first on The Motley Fool UK.
5 stocks for trying to build wealth after 50
Markets around the world are reeling from the current situation in Ukraine… and with so many great companies trading at what look to be ‘discount-bin“ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…
We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.
setButtonColorDefaults(“#5FA85D”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#43A24A”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#FFFFFF”, ‘color’, ‘#FFFFFF’);
})()
More reading
- 2 hot income shares with high dividend yields!
- 2 FTSE shares that are cheapest in their sector
- 2 inflation-resistant stocks to buy now!
- 3 FTSE 100 stocks that I will never invest in
- How I’m targeting lifelong passive income with these top UK shares
Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.