Should you buy this 14% yield from the FTSE 100 for your Stocks and Shares ISA?
Imperial Brands (LSE: IMB) is one FTSE 100 safe haven that’s bouncing in Tuesday business. Its share price is up a decent 12%, in fact, following the release of fresh trading news.
The tobacco titan said that, while the economic and social impact of the Covid-19 breakout is developing rapidly, it assured investors that “there has been no material impact”on its operations.
This shouldn’t be a whopping surprise. Imperial Brands’s tobacco products are some of the most legally addictive out there. Global consumers might be largely chopping back spending on all non-grocery-related items, sure. But cigarettes are one of those commodities which users also cannot do without, pandemic or not.
Good news all round
Investors were also buoyed by news that the FTSE 100 firm is taking steps to keep its customers well supplied. Imperial Brands said that its diversified supply chain and broad factory network is prioritising the manufacture of “major product lines” to build contingency stockpiles.
Moreover, its Logista distribution service has ramped up stocks in its regional distribution hubs, it said. The business serves the coronavirus-battered regions of Italy, France, and Spain and continues to make deliveries to retailers.
Imperial Brands crowned off a reassuring release with news that it had sealed a €3.5bn multi-currency revolving credit facility (RCF) with some 20 banks. It provides the Footsie firm with committed bank financing for the next three years and replaces the previous RCF.
It’s rare to find a release from one of Big Tobacco’s players without some fly in the ointment. Imploding demand for their traditional combustible products has plagued the industry for years now. Diving sales of e-cigarettes and other vaping technologies on health concerns have also hit hard. This could explain why stock pickers have been giddily buying Imperial Brands’ shares today.
It’s possible that, amid a sea of profit warnings and dividend cuts across the London Stock Exchange, that investors are latching onto any good news with unbridled enthusiasm.
Not for me
Forgive me if I don’t join in the party. It’s worth recalling Warren Buffett’s wise words that “you don’t buy or sell your business based on today’s headlines.”
The long-term investment case for Imperial Brands continues to be dominated by the steady decline of tobacco sales. According to the World Health Organisation, the number of smokers across the planet sank from around 1.4bn in 2000 to 1.34bn in 2018. And it expects the number to fall below 1.3bn by 2025 as governments raise restrictions on the sale, marketing, and usage of tobacco products.
This explains why, even accounting for today’s bounce, Imperial Brands has shed more than 60% of its value over the past three years. At current prices the business trades on a low forward price-to-earnings (P/E) ratio of 8.8 times and boasts a near-14% dividend yield, too.
Even these appealing readings aren’t enough to encourage me to invest. I sold my own Imperial Brands shares several years ago because of its cloudy long-term sales outlook. And I expect its share price to keep on sliding.
The post Should you buy this 14% yield from the FTSE 100 for your Stocks and Shares ISA? appeared first on The Motley Fool UK.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2020