Strong new category sales have supercharged Imperial Brands (LSE:IMB) shares over the last year. At £30.77 per share, the FTSE 100 tobacco titan has risen 67.5% in value and swept to eight-year highs in the process.
Over the past 10 years, Imperial Brands’ share price is still down 4.8%, although a recovery that started in 2020 has lessened the blow to investors. It means that £10,000 worth of shares purchased a decade ago would now be worth £9,159.
Thanks to a steady stream of dividends, someone who bought it 10 years ago wouldn’t be sitting on a loss. With dividends totalling £15.79 per share in that time, a £10k investment would have made a total return of £14,409, or 44.1%.
This is below the FTSE 100 average of 85.1%. However, with Imperial Brands’ share price in the ascendancy, could returns improve substantially looking ahead?
And should I buy the company for my portfolio?
Price forecasts
Unfortunately, the 10 analysts with ratings on Imperial Brands don’t have share price forecasts for the coming decade. But they have provided estimates for the next 12 months.
As the chart shows, price estimates vary greatly among the grouping, with targets ranging from £21 per share to £36. The average figure sits in and around current levels at £31, suggesting very little upside.
On the other hand, City analysts are confident the tobacco firm will continue delivering substantial dividend income. For 2025, the dividend yield here is 5.3%, well above the FTSE 100 average of 3.7%.
And for 2026 and 2027, the dividend yields on Imperial Brands shares rise to 5.6% and 5.9% respectively.
Should I buy Imperial Brands shares?
While those yields are attractive, at the moment I’m not tempted to buy Imperial Brands shares. I’m not confident it will help my portfolio deliver the 9% annual return I’m seeking. In fact, following recent share price gains, I fear the Footsie company’s price boom could soon run out of steam.
As I say, Imperial Brands’ price resurgence largely reflects that it’s been making non-combustible products. Technologies like its blu vapes and Pulze tobacco heater enjoyed sales growth of 26.4% at constant currencies in the 12 months to September 2024, latest financials show.
Unsurprisingly, the company plans to scale up its next generation product (NGP) portfolio as demand for traditional tobacco dwindles (Imperial Brands’ stick volumes dropped 4% last year).
But can its NGPs pick up the slack? I’m not so sure. Today, they make up just 8% of revenues, and they remain loss-making for the company. The market’s also becoming increasingly competitive, while rules on their sale and usage are also tightening on health grounds.
At the same time, regulators continue to clamp down on Imperial Brands’ most popular products, forcing sales lower. In 2022, one in five people worldwide smoked, according to the World Health Organisation. That compares with one in three at the start of the century.
On balance, I think the risks of Imperial Brands shares far outweigh the potential benefits. I’m not buying.
