Tobacco giant Imperial Brands has announced a shake-up to its dividend policy and a £200 million share buyback, in a move which will tie shareholder returns to the company’s performance.
The firm, which owns the likes of Davidoff and Rizla, will abandon its annual 10% increase from next year and instead adopt a progressive policy that takes into account the underlying performance of the business.
Imperial’s board said the change “recognises the company’s continued strong cash generation and the importance of growing dividends for shareholders, while providing greater flexibility in capital allocation”.
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 prospectsNicholas Hyett, from Hargreaves Lansdown
The company confirmed that the dividend for the current year would be unchanged, growing by 10%.
Surplus cash will be invested in growth opportunities, debt reduction and share buybacks, with £200 million of buybacks announced initially.
Investments could include acquisitions aimed at enhancing the technology behind the group’s alternative products.
Next generation products (NGPs) such as vaping and tobacco heating have accounted for some of the most rapid growth at tobacco firms in recent years.
Shares in the company rose 2.9% in early trading on Monday.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “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.”