Is it finally time to buy Imperial Brands plc?

After a 28% fall in its share price over the past 12 months, shares in Imperial Brands(LSE: IMB) offer dividend investors an attractive yield of 6.5%. The tobacco giant is also attractively valued at present levels, with a price-to-earnings ratio of just 9.9.

Multiple headwinds

However, investors may be discouraged from buying its shares as the company is exposed to growing regulatory challenges and a series of headwinds. Amid stricter packaging rules, aimed at reducing the appeal of tobacco products, rising taxes and proposed new rules to limit nicotine content in cigarettes, tobacco companies face an uphill struggle to deliver continued earnings growth.

Currency headwinds are also a concern for Imperial as the strengthening value of the pound is expected to reduce net revenue and adjusted profit by about 3.5% in the first-half and between 2.5% and 3% for the full year. And all this comes while the company is having to deal with the long-term structural decline in volumes as the smoking population shrinks.

Maintains guidance

On the upside, very little of this is showing up in its financial performance. Profits have continued to grow and only a week ago, the company reassured investors that it was still on track to meet its full-year guidance for constant currency net revenue and earnings. This was in spite of the impact of regulatory changes, excise increases in France and the collapse of UK wholesaler Palmer & Harvey.

Volumes, although still declining, have held up better than its industry peers, leading to steady market share gains for Imperial. What's more, Imperial's cost savings programme continues apace, yielding better than expected results, with realised cost savings of £130m in 2017 bringing the cumulative cost savings to £370m.

Out of favour

Elsewhere, retail real estate investment trust Hammerson(LSE: HMSO) also offers exciting dividend growth potential.

Although UK commercial property remains an out-of-favour asset class, investors should not overlook the sector as a source of reliable income. Hammerson, which focuses on investing in top tier premium shopping centres, continues to achieve record leasing activity as rents and vacancy rates continue to hold up well.

The REIT has been an impressive dividend grower in recent years, as dividends per share have increased by a compound annual growth rate (CAGR) of 8.5% over the past half-decade. With the company expected to pay a total dividend of 25.5p this year, Hammerson has a prospective dividend yield of 5.5% at its current share price.

Intu merger

Looking ahead, there's the prospect for further upside coming from its acquisition of Intu, its smaller rival. Hammerson has made a £3.4bn all-share offer for Intu, in a deal which values the smaller company at a 33% discount to its net asset value. As such, the acquisition is expected to be accretive to earnings per share in the first full year following completion.

Hammerson also expects to reap significant synergy benefits, by leveraging Intu's online experience and the combined company's enlarged scale to provide opportunities to drive footfall and improve its pricing power with tenants. Going forward, Hammerson anticipates that the dividend growth of the combined company will be at least in line with Hammerson's historical dividend growth.

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Jack Tang has no position in any 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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