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Imperial's Dividend Shoe Drops - Buy The Yield

Published Fri, 22 May 2020 07:59:23 -0400 on Seeking Alpha

Sure, an 8% yield is worse than a 13% one but there's little likelihood that there will be another cut.
Thus Imperial Brands is offering an 8% yield to investors willing to make money out of tobacco.
Assuming the investment beats the sin test that's a good income from a solid investment.
Dividend cuts
Clearly there are going to be dividend cuts in the middle of the worst economic slump since whenever. One estimation in the UK is that this is the worst since 1709, when an entirely agricultural economy suffered a disastrous harvest or two. So, profits are going to take a hit or two, that's obvious enough.
Thus dividends will get cut. Although there is that point that companies like to keep the dividend stable and or rising if they can over time. A dividend cut isn't therefore something that's done lightly. It'll be some estimation of how bad this is going to be, how long it's going to be bad for, and whether a reputation for cutting the dividend will be worth not having to pay out the cash. The shorter the estimation of the bad times, combined with the effect of the dividend upon corporate resources, will thus inform whether the dividend will be maintained or not.
Given the significance of this decision it's not something that will be done lightly. And it's also something that, once done, is unlikely to be changed. There will - at the very least - be strenuous efforts to make the one change and only the one change. So, a dividend that has already been cut is stronger for the future than one where the decision might still be to come.
(Imperial Brands stock price from Seeking Alpha)
We can see the effect of the cut in the dividend on the stock price there on 19 May. That cut being fairly substantial:
Imperial Brands (OTCQX:IMBBY) has decided to rebase the dividend by one-third, implying an annual dividend for 2020 of 137.7p/share (2019 dividend of 206.57p).
That, of course, is the... Read more