Should You Buy Imperial Tobacco Group PLC (LIMT)? – British American Tobacco PLC (ADR) (BTI)

LONDON — I believe Imperial Tobacco Group PLC (LON:IMT) is an excellent pick for the savvy income investor, as the company carries an enviable track record of hiking dividends.

Imperial Tobacco has experienced weakness in crucial markets in recent times, but I reckon the strength of its key brands and recently announced cost-cutting measures should help safeguard earnings.

Strategic cost-cutting to defend the bottom line
Imperial Tobacco Group PLC (LON:IMT) – whose flagship brands include Gauloises Blondes, Davidoff,West, and John Player Special — announced earlier this month plans to become much leaner and efficient.

The company aims to generate 300 million pounds of cost savings per year until Sept. 2018, starting in October. Also, the new strategy will see it “shutter” 150 local brands that make up around 60% of volumes, yet are dropping at an alarming rate of 6% per year.

January’s interims showed net revenues crawl just 2% higher in the third quarter, while stick volumes dropped 1% as conditions in key regions such as Europe and Russia continued to deteriorate.

British American Tobacco PLCBut Imperial Tobacco Group PLC (LON:IMT)’s ambitious plans to boost efficiency, coupled with ongoing strength among its bellwether products — net revenue and volumes across its key brands rose 12% and 10%, respectively, in the first quarter — should continue to deliver dependable earnings growth over the medium term.

Earnings growth to maintain steady momentum
City analysts forecast earnings per share could creep 5% higher to 212 pence in the year ending Sept. 2013, before rising a further 8% to 228 pence in the following 12-month period.

Imperial Tobacco Group PLC (LON:IMT) currently trades on a P/E rating of 11.4 for the current year, which is projected to drop to 10.6 in 2014. These ratings compare favorably with a forward multiple of 13.5 for the broader tobacco sector.

Gear up for solid dividend growth
Imperial Tobacco operates a very solid, progressive dividend policy that outstrips that of its rivals. A dividend yield of 4.8% is forecast for 2013, which is expected to leap to 5.3% next year. These yields compare with rival British American Tobacco PLC (ADR) (NYSEAMEX:BTI)’s 4.2% and 4.6% yields forecast for the next two years.

Imperial Tobacco upped its dividend per share 11% last year to 105.6 pence, and further chunky payout increases are expected this year and next, according to broker estimates, to 115.7 pence and 127.8 pence, respectively.

Shareholder payouts do not enjoy supreme coverage, though, with predicted dividends covered 1.8 times this year and next. But Imperial Tobacco’s position in the ultra-defensive tobacco industry should dispel fears over future dividend cuts, in my opinion.

Smoke out other sterling stocks
If you already hold shares in Imperial Tobacco, I’d now urge you to check out this special report, which highlights other FTSE winners identified by ace fund manager Neil Woodford.

The article Should You Buy Imperial Tobacco Group? originally appeared on Fool.com and is written by Royston Wild.

Royston Wild does not own shares in Imperial Tobacco Group or British American Tobacco. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!