[On :freetrade:] Imperial Brands - IMB

What are everyone’s thoughts on Imperial Brands and buying into it during this dip?

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I have been averaging down when the price was 12-13! IMB is my second biggest holding. Love the juicy dividends.

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I haven’t yet bought any stocks so I’ll be starting pretty low thank goodness! although I was looking through the company fundamentals and through news articles and came across some findings such as:

  • Unexpected departure from Alison Cooper - CEO of Imperial Brands (20 years in total, 9 as CEO). Also didn’t provide any comment
  • The company’s share price has fallen by almost a third in the last year (2018), and more than halved since 2016. Imperial Brands’ market value has fallen from more than £38bn to less than £18bn over that time. [article: Oct 2019]
  • Imperial Brands warned that the market for “next-generation products” such as its Blu vaping brand had got tougher in the US as government agencies and states had clamped down on vaping.
  • slowdown on normal cigarette sales already cutting into profits, e-cigarettes were supposed to be the next key growth area. This strategy now appears to be under threat for Imperial Brands [article: Oct 2019]
  • IMB had negative earnings growth (-26.2%) over the past year, making it difficult to compare to the Tobacco industry average (4.8%).

Should I be worried? The dividend is so attractive though, as well as the low price right now! Any thoughts welcome and do correct me if I’m wrong! :slight_smile:

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You’re right, this is probably a great time to be starting. To my mind, it depends a bit on what you saw when you were (in your words) ‘looking through the company fundamentals’. Would you mind sharing a bit more about what you did/where you were looking when you were researching this?

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I looked at articles regarding IMB spanning from now all the way to a few years ago to get a feel of where the company was heading, news wise. Examples are typing ‘IMB the guardian’ into google and clicking on articles that are relevant. I also vet companies out by looking at its financials etc on Simply Wall Street to get a better judgement on the company as a business. That’s the abbreviated version :smile:

Thanks for this. I looked at Simply Wall Street as well. They seem to be more optimistic on the outlook for IMB than the news articles you were looking at. Maybe it depends on whether you like the “fundamentals” or the “macro” approach as to where you go next. I’ve recently made a transaction regarding IMB – I’ll tell you mine once you’ve decided what to do!

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Hi @emz and welcome to the forum.

Kudos for what sounds like good research.

Are you planning to buy IMB for the dividends?

While SimplyWallSt indicates that those huge dividends are not well covered:


(source)

An analysis released by Investors Chronicle (IC) released four days ago identified IMB as a “dividend diamond”, meaning it cleared six of IC’s eight quality criteria. The report doesn’t detail which ones, but IMB met six of these eight conditions:

  1. A dividend yield higher than the median (mid-rank) average of all dividend-paying shares screened.
  2. Dividend covered at least twice by earnings.
  3. Earnings growth forecast in each of the next two financial years (ie dividend cover is not expected to dramatically fall).
  4. Operating cash conversion of 100 per cent or more (ie earnings are being tuned into cash with which to pay dividends).
  5. Interest payments covered at least five times by operating profits (ie interest payments on borrowings are not likely be a significant threat to maintaining
    dividend cover).
  6. Return on equity of 12.5 per cent or more (i.e. an indicator that the business may be of decent quality [if the interest cover test is also met, it suggests high returns on equity are not overly dependent on high debt levels]).
  7. A beta of 0.75 or lower.
  8. No dividend cut in the past three years.
    (source)

Ultimately, there are two questions for you as an investors:;

  1. How do you think about the future of smoking? Will a lot of people pursue healthier lifestyles or will they enjoy their tobacco, and indeed, new generation products (vapes)?
  2. Is IMB’s strategy (see below) solid enough to do well enough to pay out dividends, given your answer of question 1?


(source)

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Hey Connor, thanks for your insight and the info which is really useful!

Here are my answers to your questions:

  1. How do you think about the future of smoking? Will a lot of people pursue healthier lifestyles or will they enjoy their tobacco, and indeed, new generation products (vapes)?
  • I definitely do feel as though newer generations value healthier lifestyles but that’s not to say that smoking/smoking alternatives won’t be popular either. Hence why I’m quite conflicted!
  1. Is IMB’s strategy (see below) solid enough to do well enough to pay out dividends, given your answer of question 1?
  • I’ve seen their strategy on their website! Everything on their website looks fine and dandy but the news articles suggested otherwise which was a huge bummer haha. Their quarterly dividend is so attractive, and their high dividend yield is almost screaming at me to invest to them😂 They are a FTSE company so I’m not too worried about them going bust in the next 5 years and not being operational but they do have quite high debt amongst over stats!
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I’m taking into account both, but again super conflicted so thought I’d check out what other free traders are doing! My mind is telling me no, but I might just put in some small play money to reap the dividends although I’m not too sure if this will come back to bite me. I know worse case scenario I can dca it out :slight_smile:

Imperial Brands is known as a somewhat reliable dividend stock. In any case, they are not cutting or cancelling dividends, so they must see a way they can continue to cover them.

An “edge” as a retail investor you can have is your personal insight. Maybe you know someone who works at a vape shop, and they see the stuff flying off the shelves. Maybe you smoke yourself or a lot of your friends do, and you see trends that others don’t.

Impressed with your research. Keep it up and welcome to the forum.

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This is one of my biggest holdings atm too. Im about 8% down.

I think I might have jinxed us :disappointed_relieved:

Thanks Connor and cheers for the insight! Still really new to this so I’m really stoked to be a part of the community and this awesome forum. :slight_smile:

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I get the feeling! :sob: do you plan on averaging down and selling once averaged, or keep it for the dividend?

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I think it will drop a bit more in the short term so I’ll probably buy a bit more when It does. I plan on holding IMB for at least another year unless there is a nice gain for me to cash out on. The dividends I’ve received so far are covering the losses so I’m not too worried.

It’s definitely a risky investment at this point but it seems like they are slowly moving their focus from traditional tobacco products to ‘’’‘healthier’’’ alternatives like their e-cig brand BLU which IMO is a good move. They also have their Clipper lighter brand and Rizla rolling papers which are very strong brands IMO and ones I use and buy personally.

Just my thoughts ofc, don’t take this as investment advice, do your own research… etc, etc. :laughing:

As investors, I feel very strongly that we need to balance returns from share price increases and dividends, with the environmental, health and social impacts of companies we invest in. Given all the evidence gathered since the 1950’s of the negative effects of smoking on health (increasing incidence of cancer, COPD and emphysema to name a few diseases), plus recent, increasing and yes, sometimes controversial / unclear research on the impacts of vaping, I think it’s essential to look purely beyond financial returns when considering investing in stocks. In my opinion, there’s a third question to the two questions it’s suggested that we should ask ourselves above: Does the success of the company I’m investing in cause significant short or longterm damage to individuals, communities and the environment? I know everyone has their own moral compass (and I respect other opinions that don’t accord with mine), but I personally would never invest in a company or industry where their impact on society is in my opinion so clearly negative overall and where new customers continually need to be recruited (i.e. marketed to) to offset the loss of existing customers not through competitors, falling incomes or shifting tastes and behaviours, but through death.

do you agree?

  • sure
  • kinda
  • nope

0 voters

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I can fully appreciate what you’re saying, thanks for sharing.

In my view, If people want to smoke then they should be allowed to, who are you or I to say what they can and can’t do? It’s no secret that tobacco causes cancer, it’s literally printed on the boxes. There are plenty of tools out there to help people stop smoking if they wish and there are less harmful alternatives to help stop tobacco use (which IMB also make).

Unless it’s made illegal I think there will always be people that want to consume tobacco or nicotine in some form, some people genuinely enjoy it (check our cigarette and cigar reviewers on youtube). I’m a social smoker myself so I’ll only really smoke if I’m drinking at a bar or pub. Alcohol and tobacco just go hand in hand.

Just my view ofc.

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Thanks @josh7 for sharing your views too :slight_smile:

My post was less about the personal freedom of smokers to choose to smoke (and the right of any individual, organisation or government to impose their point of view on that choice) and more that I feel (just my opinion) that when evaluating companies for investment we shouldn’t base our decision purely on profits / revenue / stock performance (historical, current and future) and also look at the various bottom lines beyond that. At best is a company positively contributing to the (health / financial / emotional / security etc) wellbeing of individuals, communities and the environment? Or at worst, is it not negatively impacting it? According to the World Health Organisation "Every year, more than 8 million people die from tobacco use. […] Tobacco can also be deadly for non-smokers. Second-hand smoke exposure has also been implicated in adverse health outcomes, causing 1.2 million deaths annually. Nearly half of all children breathe air polluted by tobacco smoke and 65 000 children die each year due to illnesses related to second-hand smoke. Smoking while pregnant can lead to several life-long health conditions for babies." https://www.who.int/health-topics/tobacco#tab=tab_1 Reading that from the United Nations agency responsible for international public health, to me puts the tobacco industry firmly on the side of negatively impacting individual and community wellbeing.

What I missed out from the quote above is this: “Most tobacco-related deaths occur in low- and middle-income countries, which are often targets of intensive tobacco industry interference and marketing.” while the CDC (leading national public health institute in the US) say “Cigarette smoking disproportionately affects the health of people with low SES (socio-economic status). Lower income cigarette smokers suffer more from diseases caused by smoking than do smokers with higher incomes.” https://www.cdc.gov/tobacco/disparities/low-ses/index.htm As a community of investors, isn’t it our responsibility to at best redress (or at worst not contribute to reinforcing) societal imbalances caused by poverty?

If IMB were serious about helping people stop tobacco use, rather than also profiting from less harmful alternatives, wouldn’t they just stop selling cigarettes and other nicotine containing substances? Couldn’t they fund programs that actively increase health, decrease stress, improve social connections etc like grass-roots sports programs or healthy eating initiatives?

You make a good point about there being tools to help people stop smoking. Yes, there are tools, services and organizations to help people do that. In my view, they’re seriously underfunded compared to what is spent on helping people quit (not to mention the fact that they wouldn’t be needed at all, if tobacco products weren’t available on the market). Full disclosure, I couldn’t find great stats on this, but in 2016 (the last year for which stats seem to be available) “cigarette and smokeless tobacco companies spent $9.5 billion on advertising and promotional expenses in the United States alone.” https://www.cdc.gov/tobacco/data_statistics/fact_sheets/tobacco_industry/marketing/index.htm That’s an unbelievable amount, not to mention the millions spend on lobbying companies and individuals to influence governmental policy around the world.

Like you (as it sounds like), I believe people should have the right to live, think and love as they want (as long as it doesn’t harm others). I do think though that as investors, we have a responsibility to evaluate companies carefully in terms of what they add to society and what they take away. Just because something is legal doesn’t mean it’s good. Likewise, just because we can make money by investing in a company or sector, doesn’t mean we should.

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You’ve obviously done your research and are much more informed in this area than me so I don’t have much of a counter-argument. Apologies if you were expecting one :stuck_out_tongue_closed_eyes:.

The only thing I will comment on is this bit;

I don’t think it’s IMBs responsibility to do any of these things. At the end of the day they are a business and while all those things you suggested would be great to have, they don’t sound very profitable. I don’t know of many businesses that fund things like that unless it’s for publicity.
I can’t even imagine how many hundreds of millions McDonalds had to spend to become the ‘official restaurant’ of the London Olympics back in 2012 but I’m sure that money would have been better used to fund gyms and the like. (A bit of a weak comparison but hope you get what I’m saying)

All that being said, I do think the tobacco market is dying out as younger people become more informed and don’t take up smoking but there is still money to be made and if I/we don’t invest, there’s always going to be someone else who will.

If it makes you feel any better, I’m planning on cutting back my IMB investment by about 70% over the next year or two to reduce the amount of holdings I have in that industry. :laughing: I also have some holdings in gambling stocks so I’m defo not a very ‘ethical’ investor, sorry :wink:.

I invest in all the ‘vice stocks’, eg tobacco, alcohol and gambling.

Everyone knows that none of the above are good for you yet there will always be people who do the opposite of what they are told to do for their own good (see being told to stay at home, etc…)

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You make indeed a really good point.

However, in really few word my point is: in a perfect world we would base our investment decision not only on profit but also on the impact that the company has on the environment, people,etc.

But unfortunately (only my view here) we do not live in a perfect world. And I get your point of the responsibility that as investor we should aim to help ethical companies to succeed. This would be make the equities world much narrower and limit your exposure to index fund.

I am not an expert but I think the majority of the companies listed in the ftse 100 or s&p 500 are not so ethical.

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