At almost 9.5 per cent, the dividend yield attached to Imperial Brands' (IMB) shares puts the tobacco giant out in front of our 2019 Income Majors list. This may trigger a red flag for some investors, as such a high dividend yield can often be a signal that a company's capital structure is unsustainable. Perhaps mindful of the need to reset investor expectations and assuage fears, Imperial Brands this week said it will scrap its 10 per cent annual dividend growth policy, in favour of more modest – although still progressive – payouts.
As ever, it's a delicate balance. Imperial is, quite understandably, largely held for its income, although management said the changes are part of a wider review of capital allocation priorities. If distributions are to continue for the next decade, the group needs to up its investments in growth areas, specifically next-generation products (NGPs) and potential M&A opportunities to build its presence in that product line. Supporting this is the continued divestment programme, which is on track to bank around £2bn in proceeds from brand sales, including the cigars business, by May 2020.