Imperial Tobacco Half Year results and confirmation of the dividend policy

So the Imperial Tobacco half year results are out and Imperial Tobacco have indeed confirmed their intentions with their dividend policy. They are to increase the interim dividend by 11% (31.7p to 35.2p).

The board have also confirmed that they intend to increase the dividend by at least 10% per year, music to any income investors ears. Of course this is liable to change pending performance but is great to hear. They have confirmed that they intend to employ this dividend policy for the medium term. The shares go ex dividend on the 17th July 2013 with a pay date of 16th August.

On this information I have taken a position at 2300p per share.

Greggs isn't flavour of the month

Greggs shares were hit today following a poor interim management statement. They have stated that the like for like sales in the first 17 weeks was down 4.4%. They have put this down to the adverse weather conditions on the high street, which most of the retail industry are blaming their fall in sales on. What is interesting however is that they have stated they expect no improvement in the difficult trading conditions, which is odd as I thought we could expect better weather now heading into summer.

They issued their preliminary results on the 20th March and announced a final dividend of 13.5p per share (to go ex dividend on 26th April and paid on the 24th May). This will give a total dividend of 19.5p per share, a measly annual dividend increase of 1%. The dividend cover therefore sits at 2 currently based on these figures, so it does remain well covered.

The Chairman advised in his statement that the board remains committed to pursuing a progressive dividend policy. This will naturally hinge on profitability. I will calculate the average dividend growth over recent years shortly. I have been watching these for some time, now relieved I didn't commit.

Imperial Tobacco profits reassured

Following on from my previous post regarding the uncertainty of Imperial Tobacco's dividend policy due to the reduction of profit in their last financial year it appears there is a logical and perfectly good explanation or this.

They felt during the last financial year that the goodwill in Spain was overstated and as a result wrote it down by £1.3bn as a result this reduced their assets and the profit. So whilst the dividend cover has been hit severely it could be deemed for being a manipulation of the figures - albeit negative.

It will be interesting to see what the half year results give shortly with regard to the profit and whether they stick with the progressive dividend policy and dividend growth.

Imperial Tobacco - a consideration?

I recently read an article suggesting that Imperial Tobacco is a favourite in the dividend growth stocks field with an excellent company dividend policy seeing double digit dividend growth. So is it worth a shot?

Firstly lets have a look at the strength of the dividend policy by figuring out the seven year average dividend growth.


             Dividend    Dividend Growth
2006        62p              
2007       69.5p             12.1%
2008       66.2p             -4.75%
2009        73p              10.27%
2010       84.3p            15.48%
2011       95.1p            12.81%
2012      105.6p           11.04%

So the average dividend growth over the 6 years is a whopping 9.49%,  clearly a lot of importance is put on their dividend policy. Now the dividend cover, a dividend of 105.6p and earnings per share of 68.1p Which gives a dividend cover of 0.64. Seemingly quite substandard.

It is also important to note that back in 2008 there was a dip in the dividend which means the dividend policy isnt as robust as I would hope for, I think it may therefore be worthwhile to wait for their next results to see what they intend with regard the dividend policy.


This will clearly need further research as they paid dividends out of reserves last year which is never good. Research may show that there may have been special circumstances affecting the profit. Tobacco companies are said to be heading into stormy sea with the future of smoking being in question. There are diversifications available however with smoke free cigarettes and the potential of other markets not currently maximised. Further research required here.

The Importance of the Company Dividend Policy

As the name of my blog suggests a company's dividend policy is the backbone to a lot of my investments (there are others which have no bearing on the dividend policy at all and some where the dividend policy is only a minor consideration).

As the well known saying goes "Actions speak louder than words." I mean anyone can say we're going to increase this by this amount and so on (should they not however then the shareholders wouldn't be impressed but it is possible that they could have such a short term outlook to keep the share price buoyant).

I find the best way identify to a company's intentions with regard to their dividend policy is to look at their dividend history and what dividends they have paid over the years. Now you can go back as far as you like but I find 6 years is plenty and gives a sufficient guide as to what they intend to pay in the future with regards dividends. It is worth noting here that the actual share price has no bearing on this exercise I'm just looking at the average dividend growth.

One of the powerhouses of dividend growth shares is British American Tobacco so I shall use this as an example.


            Dividend    Dividend Increase
2006       55.9p             
2007       66.2p              18.43%
2008       83.7p              26.44%
2009       99.5p              18.88%
2010       114.2p            14.77%
2011       126.5p            10.77%
2012       134.9p             6.64%

Clearly when identifying the dividend policy of a company the continued annual dividend increase is vital, any decrease in dividend over the 6 year period must be looked at and lead to the likely discarding of the share.

Above however you can see that British American Tobacco's dividend history shows that British American Tobacco's dividend policy is firmly one of dividend growth and strong dividend growth at that. Whilst there is a fluctuation over the years the average comes out at a strong 15.99%.

So following this calculation the higher this 6 year dividend growth average figure the better obviously but a single annual decrease in the dividend should be looked at closely as this demonstrates the company doesn't have such a strong dividend policy.

The importance of Dividend Reinvestment and DRIP's

For the benefit of the long term growth of any portfolio it is key to reinvest all dividends, should you not absolutely require the income there and then. This is known as a dividend reinvestment plan or a DRIP. The best way to explain this is like compound savings on steroids. Put simply all dividends you receive are then reinvested in shares of the company. If you don't need the funds at the time or you are looking to grow your portfolio this is a no brainer and the only way forward is to benefit from a DRIP.

To try to clarify, and this works best with companies who have a dividend policy of dividend growth. You earn a 10p dividend for every share you hold for example. Of the total dividend you receive you reinvest in more stocks. Say you manage to procure another 100 shares with your DRIP. The following year the company has a dividend policy of growth and decide to increase the dividend by a juicy 10%. Obviously this means that your dividend per share increases to 11p per share this year. So you have the dividend from your original shares (with an increase of 10% due to the increased dividend policy of the company but you also have the dividend of your extra 100 shares over and above this). You can see how quickly the dividend growth starts to take hold and accelerate the growth of the portfolio. There is no savings account in the land that decides to increase your return each year. That said whilst the dividend of a stock may well increase, you would also hope that the value of the stock increases so the dividend yield may well actually remain the same over time.

The plan with the dividend policy

As a total novice investor and having honed my investing through trial and error, which has been fairly costly in this arena I now have a number of criteria I try to fulfil before buying into a stock which has led me to devise the plan I try to stick to now which is the Dividend Policy. I first started out chasing the next big growth stock thinking I could make an exciting and captivating fortune in days rather than slow, dull growth over years. This tends to be through Penny Stocks and as any investor worth their salt knows that this is wholly unreliable and 19 times out of 20 the stock tanks rather than makes any serious gains.

It didn't take long before I realised this strategy was destined to ruination and looked for more reliable or predictable gains albeit at a slower rate. Now nothing in this game is certain and as we all know the value of stocks can go down as well as up and can leave us with nothing, thus the reason why you should only ever invest as much as you can afford to lose, so should I say something I had a better chance of predicting.

Stocks paying dividends are a way to secure cash without so much relying on the movements of the markets so I started turning my attention to these. With dividend paying stocks you receive an income from the shares that you hold (providing they pay a dividend) which can be reinvested in further shares as and when you receive them. Dividend paying companies tend to be larger companies with less volatile share prices and a more solid business structure meaning that they have less of a tendency to see large rises or falls in the share price.

I started out by thinking that when a dividend is announced that money is guaranteed from a company, which it generally is, for that year at least. There is nothing certain about the years to come however and the dividend can so easily be cut.

Again I suffered this fate at the hands of HMV. I looked at them as having a juicy yield (the yield is the dividend as a percentage of the share price) of around 10% which is huge. Needless to say the share price plummeted as HMV have since gone into administration. Fortunately I managed to cut my losses and came out fairly unscathed, many didn't. From this I learnt that you can't take the dividend in isolation and there are many other factors to consider as the dividend may be exceptionally attractive but if something looks too good to be true it generally is. Please see the post shortly for problems with excessive dividends and unreliability.

This scheme I have named the Dividend Policy, there is a reason for this which I'll detail shortly.

Tesco dividend policy stalls on slowing figures

As predicted Tesco full year results were walloped by the Fresh and Easy venture into the states. This has resulted in a freeze on the dividend policy. The final dividend of 10.13p per share will give a total annual dividend of 14.76p per share, the same as last year. A cut in dividend, whilst possible, would have sent a strong message reverberating around the markets suggesting that Tesco are prepared to cut the dividend, this would not wash at all well with the shareholders. The ex dividend date for the final dividend hasn't yet been confirmed however it will likely be very similar to last year which had an ex dividend date of the 25th April. As I stated above Tesco have seen a reduction in profit for this year. Whilst the overall sales have increased the cost of exiting the American market has cost them dearly and has hit the bottom line hard. The share price has opened well down this morning. The dividend policy is well covered however with a dividend cover of around 2.3. Once the market has settled down I think we will see future profits grow, I'll continue to hold.

Is the Tesco dividend policy to suffer from Fresh and Easy?

Tesco is to release it's results later this week however it has been suggested that it may be taking a £1bn hit as a result of the failure to penetrate the American market with their venture Fresh and Easy. Tesco has had a robust dividend policy of year on year dividend growth in recent history. They slogged away at this Fresh and Easy venture for a few years and like any other attempt by other companies to get into the market in America they failed and finally decided to cut their losses. This came as a relief to many shareholders believing the venture to be a money pit. We shall see what dividend is announced in the results on Wednesday and whether they stick with their dividend policy. I hold Tesco currently but will reassess my position following the results.

Chesnara's dividend policy looking strong but for how long

Chesnara, the insurance services provider, has maintained it's dividend policy and has again increased the dividend for the year having gone ex dividend a couple of days ago. Whilst it is worthwhile keeping an eye on this I am holding off taking a position as the dividend cover is only around 1.4 and I'm therefore unsure whether they will be able to continue this dividend policy should they hit a bump in the road. With a juicy 7.4% yield though it can't be overlooked and as such I will be keeping these on my watchlist monitoring their dividend policy.