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By Simon Watkins

FTSE 100 tobacco and nicotine products manufacturer Imperial Brands (LSE: IMB) is one of those shares regularly overlooked by investors.

Companies in this sector, like those in oil, are ethically unpopular nowadays, but this misses a key point, I think.

Another is that because they are overlooked, they tend to offer excellent value. And the final reason in the case of tobacco and nicotine product firms is that they pay high dividend

As a former heavy smoker myself, I think this is the least they owe me.

Regular high dividend payer

In the past four years, working back from 2022, Imperial Brands paid 7.6%, 8.9%, 10.1%, and 11.3% in dividend yields.

Last year, the total dividend was 146.82p. This gives a yield of 7.5% based on the current share price of £19.67.

At this price, just under £11,000 would buy me 559 shares in the firm.

Big passive income generation

So, 559 shares in the company would make me around £825 in dividends in the first year. After 10 years averaging the same yield, I would have another £8,250 on top of the £11,000 or so investment.

This is known as ‘dividend compounding’ and is the same process as compound interest in a bank account. But rather than interest being reinvested, dividend payments are.

If this was done, then the dividend payments after 10 years would total £12,233 instead of £8,250!

This would mean £23,233 in total, paying £1,674 a year in dividends, or £140 a month.

Over 30 years on an average 7.5% yield, the investment pot would total £103,637, paying £7,466 a year, or £622 a month!

Inflation would reduce the buying power of the income, of course. And yields can fall as well as rise, depending on dividend payments and share prices.

However, it highlights that a significant passive income can be generated from relatively small investments in the right stocks if the dividends are reinvested.

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If u are reluctant to invest your hard earned in a dying industry, literally, substitute with your favoured IT u have discovered using your own research.

GL