Imperial Brands PLC's (LON:IMB) dividend will be increasing from last year's payment of the same period to ￡0.5426 on 31st of December. The payment will take the dividend yield to 6.7%, which is in line with the average for the industry.

Check out our latest analysis for Imperial Brands

Imperial Brands' Future Dividend Projections Appear Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Imperial Brands' dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Over the next year, EPS is forecast to expand by 16.5%. Assuming the dividend continues along recent trends, we think the payout ratio could be 52% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was ￡1.16 in 2014, and the most recent fiscal year payment was ￡1.53. This implies that the company grew its distributions at a yearly rate of about 2.8% over that duration. The dividend has seen some fluctuations in the past, so even though the dividend was raised this year, we should remember that it has been cut in the past.

We Could See Imperial Brands' Dividend Growing

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Imperial Brands has grown earnings per share at 8.9% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.

We Really Like Imperial Brands' Dividend

Overall, a dividend increase is always good, and we think that Imperial Brands is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Imperial Brands that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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