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An income stock that I think could boost passive income is imperial marks (LSE: IMB). This is why.
Imperial stock going up in smoke?
I’m not surprised to see the recent and historic struggle in Imperial’s share price. External problems and the general negative outlook towards tobacco companies for ethical reasons have not helped. Of course, ESG investors avoid tobacco stocks due to the harmful effects of smoking.
As I write, Imperial shares are trading at 1,783p. Last year at this time they were trading at 2,073 pence, which is a drop of 13% over a 12-month period.
An Income Stock with a Great Track Record
Share price growth would be good. However, when it comes to Imperial stock, I’m here for the dividends.
The glory days of double-digit dividend growth may be behind us when it comes to Imperial’s investor return policy. However, there is still plenty of money available to help smart investors grow passive income, in my opinion. The pandemic put an end to the bumper days of huge dividends, but the company has since started raising dividends once again.
As I write, Imperial’s dividend yield of 8% is extremely attractive. As an income stock, its performance is much higher than the FTSE 100 average of 3.8%. On top of this, Imperial’s recent share price drop makes the stock look like good value for money with a price-to-earnings ratio of just 10.
I understand that past performance is not an indicator of what will happen in the future. However, Imperial looks like a business in good shape that could help boost passive income as part of a diversified stock portfolio.
To begin with, the tobacco industry was, and remains, a cash-rich sector. This cash bounty has made tobacco stocks like Imperial historically popular with passive income seekers. The number of smokers may be falling in the UK and other developed countries, but Imperial still makes a lot of money in developing countries where smoking levels are at record highs. In my opinion, this can pay consistent dividends.
Additionally, Imperial has recently begun to focus on what it does best, which is manufacturing and selling cigarettes. The sale of its cigarette business to ease its debt load, as well as the reduction of its tobacco alternatives businesses, should help the business improve performance and payouts. When I add to this Imperial’s impressive brand power and broad geographic footprint, there’s a lot to like.
An income stock with challenges to face
I should point out that regulation is becoming stricter and an ever-present threat to Imperial. A prime example of this recently is the UK Prime Minister looking to introduce plans to essentially increase the legal age for purchasing cigarettes. This could harm demand for Imperial’s products at least in the UK, especially their performance and profitability for investors.
Additionally, Imperial has quite a bit of debt on its balance sheet. This is bad news as it means profits can be used to pay off debt. Additionally, in the high-interest rate economy we find ourselves in, servicing this debt can be more expensive.
Despite the challenges, I think Imperial is an excellent income stock that could provide consistent dividends. However, it should be noted that dividends are never guaranteed.
