Imperial Brands yields 14% after honouring dividend promise

With dividends falling like flies, it is a relief to see a big name return a big payout to shareholders.

The despair of income investors was eased for some today when high-yielding FTSE 100 index stock Imperial Brands (LSE:IMB) kept its commitment to pay a dividend worth £683 million.

Imperial's 72.01p a share award comes after a flood of companies announced in recent days they were sacrificing or postponing payments. Driven by the need to protect cash flows in the face of coronavirus uncertainty, some pulled the plug just days before dividends were due.

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The payment from Imperial was one of several “small wins” for investors today as the London market continued the tentative recovery seen in recent days. The FTSE 250 index, which more accurately reflects the mood of the UK economy, was up 2% at just below 15,000.

There were share price gains for several companies after the release of updates today, with Severn Trent (LSE:SVT) and advertising giant WPP (LSE:WPP) among them in the FTSE 100 index. Other closely watched stocks on the front foot included De La Rue (LSE:DLAR) and Galliford Try (LSE:GFRD).

Imperial's dividend payment is the final chunk of the £1.96 billion being given to shareholders in relation to its 2019 financial performance. That represented the eleventh year of 10% dividend growth, although investors are worried that tougher trading conditions, high debt and doubts about the progress of vaping products may impact future dividend payments.

The Bristol-based company, whose forward dividend yield has risen to 14.4%, offered some reassurance today when it said there had not been any material impact on its performance from Covid-19. It also announced a new £3.1 billion credit facility with a syndicate of 20 banks that provides financing up until March 2023.

Shares rose 10% today but are still a fifth lower than the turn of the year. WPP was also 5% higher, despite suspending its 2019 final dividend of 37.3 pence per share, which was due to be proposed at the company's AGM in June. With WPP's £950 million share buy-back programme also on hold, the group estimates the moves will save about £1.1 billion in cash.

Source: TradingView Past performance is not a guide to future performance

It said its balance sheet and liquidity remained strong, having raised over £3.2 billion from offloading at least 50 businesses and investments in the past two years. Cost reduction measures are also expected to generate savings of more than £700 million in 2020, including from a 20% reduction in salaries for board members for an initial three months.

March trading has been challenging, with uncertainty over the immediate outlook prompting WPP to withdraw guidance for 2020. There were pockets of encouragement in today's update, however, after modest growth in like-for-like revenues for January and February. The shares have now fallen 50% this year.

In contrast, defensively positioned Severn Trent is down less than 10% in 2020. The utility giant, which provides water to more than eight million people, said today there had been no material change to its current year performance since an update in January.

Outside the top-flight, banknote printer De La Rue surged 10% amid relief that Covid-19 had not caused any more damage to the company's already deflated 2019/20 profit forecasts. That should buy new CEO Clive Vacher more time for his turnaround ambitions, particularly as the group traded within its banking covenants for the year.

Vacher's initial areas of focus are on accelerated cost savings, as well as the growth in polymer banknotes and further momentum in product authentication services.  He also still needs to secure longer-term financing options with banks.

Shares in construction group Galliford Try rose 10%, even though it said it was no longer possible to provide guidance for the 2020 and 2021 financial years. It also pulled the 1p a share dividend it announced only 19 days earlier in interim results.

But having recently sold its Linden Homes housebuilding division, the company reiterated today that it was a well-capitalised business with no debt or bank covenants.

Michelmersh Brick (LSE:MBH) shares were up 11% after it reported a 31% jump in full-year earnings per share for 2019 to a record 8.87p. The results come a week after the company said it was deferring dividend payments until normal business resumes across its sector.

One company benefiting from the current turmoil is digital security software provider Kape Technologies (LSE:KAPE).

It is seeing increased demand for its products due to an increase in remote and home working, with the group now on track to deliver revenues of US$120-123 million and adjusted earnings of $35-38 million this year. Shares jumped 16% today.