Time for me to buy more of this 61% undervalued FTSE heavyweight with a 6% forecast yield?
Top-tier FTSE heavyweight Imperial Brands (LSE: IMB) has risen 28% in the past year. However, this does not mean the shares are left without any value in them.
In fact, following its recent full-year 2025 results, I believe the company looks in very good shape. This should drive its earnings higher in the coming years, powering further share price gains.
Along with other analysts, I also think the firmâs dividends will increase significantly too. This would seriously boost its existing credentials as a great stock to generate retirement income.
So, whatâs the growth story here, and what are the exact numbers we are looking at?
Whatâs the business narrative?
Broadly speaking, the results released on 18 November showed resilient adjusted growth, strong cash generation, and continued good shareholder returns.
Adjusted tobacco and ânext-generation productsâ (NGP, mainly nicotine substitutes) rose 4.1% year on year to £8.316bn. The NGP segmentâs revenue alone grew 13.7%, driven by oral nicotine products demand in the US and Europe. This helped offset the ongoing decline in cigarette volumes.
On the back of these gains, adjusted operating profit rose 4.6% to £3.988bn and earnings per share jumped 9.1% to 315p. As a result, the dividend was raised 4.5% to 160.32p.
Whatâs the outlook?
The full-year numbers again underlined the importance of the firmâs ongoing strategic shift from tobacco products to NGPs. It aims to maintain NGPâs double-digit net revenue growth each year to 2030.
By that time, Imperial Brands expects its NGPs to account for at least 25% of the $17bn global market for these products.
Given this, the key risk for the firm is any derailment of this plan. This could hit its short-term earnings and longer term allow competitors to gain an advantage in the segment.
That said, the firm expects low-single-digit tobacco and double-digit NGP net revenue growth. Adjusted operating profit is expected to grow in the 3%-5% range.
It also expects to generate free cash flow of at least £2.2bn in the coming 12 months to add to the £2.7bn this year. This can be a major driver for business growth in itself.
Rising dividend yield bonus for shareholders
The latest 160.32p dividend gives a yield on the current £32.13 share price of 5%.
However, analysts forecast that the dividend will rise to 168.6p in 2026, 176.9p in 2027, and 194.1p in 2028.
These would generate respective divided yields on the present share price of 5.2%, 5.5%, and 6%.
So, investors considering a £10,000 investment at 6% would make £8,194 in dividends after 10 years. And after 30 years, it would be £50,226. These numbers include âdividend compoundingâ.
My investment view
I am going to buy more of the stock, based on the projected dividend gains and strong earnings growth prospects.
A further positive in my view is the extreme undervaluation of the stock. This could produce significant share price gains if I ever decide to sell it.
Specifically, a discounted cash flow analysis shows the stock is 61% undervalued at its current £32.21 price.
Therefore, its âfair valueâ is £82.59.
I am also looking at other stocks that offer a similar combination of a deep discount, strong earnings growth and high dividend yield.
The post Time for me to buy more of this 61% undervalued FTSE heavyweight with a 6% forecast yield? appeared first on The Motley Fool UK.
Should you invest £1,000 in Imperial Brands PLC right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Imperial Brands PLC made the list?
More reading
- This FTSE 100 income machine yielding 5.5% keeps pumping out dividends
- For how long might the Imperial Brands dividend keep growing?
- FY results cap another great year for the Imperial Brands share price!
- I asked ChatGPT to build a stunning second income in an ISA from UK dividend stocks and it saidâ¦
Simon Watkins has positions in Imperial Brands Plc. The Motley Fool UK has recommended Imperial Brands Plc. 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.
