Aviva vs Imperial Brands: which is the superior FTSE 100 dividend stock?

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For income chasers, both Aviva(LSE: AV) and Imperial Brands (LSE: IMB) may seem to be scintillating FTSE 100 stocks.

Both companies have been lifting annual dividends by double-digit-percentages over the past several years, and the City’s many brokers are expecting them to continue growing them at a robust rate.

In the case of Imperial Brands, the 170.7p per share payout for the 12 months to September 2017 is expected to rise to 188.3p for the fiscal period just passed. And dividends are expected to rise again to 203.5p in fiscal 2019, meaning that a juicy 7.9% yield can be enjoyed.

Meanwhile, over at Aviva a 29.3p dividend is forecast for 2018, up from 27.4p last year and resulting in a chubby 6.7% yield. And things get better for 2019, the predicted 32.8p payment yielding 7.5%.

While yields might not be as big at Aviva, I consider the firm to be a much better growth and dividend selection than its Footsie compatriot.

Under pressure

Last time I covered Imperial Brands I paid reference to the growing uncertainty concerning the profitability of the e-cig sector, the holy grail of Big Tobacco as demand for traditional, combustible tobacco products dives.

News flow has worsened since my August article too. Late last week a University of Athens study blew to smithereens claims that vaping is less damaging to smokers’ health when it showed that the flavourings in e-cigarettes had caused greater levels of lung inflammation in mice than the fumes from conventional cigarettes had.

The report in the American Journal of Physiology is the latest to add fuel to the calls for legislative action to curb the use, sale and marketing of these next-generation products until the long-term impact on users’ health is better understood.

Chief executive of Hong Kong Carrie Lam has added to the chorus of disapproval in recent days and called for the city to join the list of countries that have already banned e-cigs. The US Food and Drug Administration is also considering the withdrawal of these products as their appeal to young people in the country has reached what the body calls “epidemic” levels.

A better buy

Earnings at Imperial Brands are expected to grow fractionally this year and next, reflecting the steady demand decline for its traditional cigarettes. And clearly there’s plenty of uncertainty over whether it can start to generate strong profits growth in the longer term, putting the possibility of more sizeable dividend raises in jeopardy as well.

I’m certainly not as concerned over Aviva’s earnings picture in the near term and beyond. The surprising resignation of chief executive Mark Wilson last week, the genius behind the insurer’s successful restructuring programme over the past several years, has of course put the ship in uncharted waters again.

But I’m certain that, as business at its overseas divisions takes off, Aviva can deliver striking profits growth in the years ahead. Indeed, the value of new business in its Europe and Asia and it’s Aviva Investors arms leapt 24% and 21% respectively at constant currencies from January to June to prove its significant international promise.

This perky profits picture, allied with its exceptional cash generation, makes Aviva a much better buy than Imperial Brands, in my opinion.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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.

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