(Reuters) - British tobacco company Imperial Brands Plc (IMB.L) will drop its 10% dividend growth target from next year to focus on developing its e-cigarette portfolio and plans to buy back shares worth up to 200 million pounds ($251 million).
The company said on Monday it would increase its dividend payouts annually, but through a more progressive dividend policy that would take into account underlying business performance.
“Imperial Brands’ shares are popular among retail investors for their generous pay-out,” Russ Mould, investment director at AJ Bell said.
“However, there had been growing concerns in the market that its rate of dividend growth was unsustainable if the company were to keep the rate of net debt to earnings at comfortable levels.”
The move comes as the Davidoff and Gauloises cigarette maker tries to grab a bigger piece of an e-cigarette market dominated by Altria (MO.N)-backed Juul Inc. The company expects its vaping products, mainly blu e-cigarettes, to be one of its key revenue drivers and add to profit next year.
While sales of traditional cigarettes have been declining in developed markets, e-cigarettes have come under regulatory scrutiny following a surge in teenage use of the devices.
The company's shares, which have tumbled more than 17% this year as the wider industry has also suffered from an increased investor focus on ethical investments, rose 2% to be the top gainer on the FTSE 100 .FTSE on Monday.
“All this makes sense, a double-digit dividend yield is more than any investor needs or can reasonably expect in the current climate, and throwing more money at shareholders has failed to make the shares more attractive,” analysts at Hargreaves Lansdown said in a note.
Imperial Brands joins a growing list of FTSE 100 stocks which have reviewed their dividend payouts in the past year, including Vodafone Group Plc (VOD.L) and Marks & Spencer Group Plc (MKS.L), as they focus on turning around their businesses.
Imperial said the new dividend policy would allow investment in both organic growth and M&A opportunities in tobacco and vaping products and help it reduce debt.
The company also said its plan to sell its global premium cigar business in a bid to shed assets worth 2 billion pounds by May 2020 was on track and that it was looking at delivering a net debt to core earnings ratio of 2-2.5 times.
Reporting by Siddharth Cavale, Tanishaa Nadkar and Noor Zainab Hussain in Bengaluru; Editing by Emelia Sithole-Matarise and David Evans