Imperial Brands and the Art of Defensive Investing: Share Buybacks in a Resilient Sector

In the realm of defensive investing, few sectors offer the combination of stability, cash-generative potential, and predictable returns that tobacco does. Imperial Brands, a global leader in the industry, has leveraged its resilient business model to execute a multi-year share buyback program that underscores its commitment to shareholder value enhancement. As economic volatility persists, the company's strategic use of buybacks-coupled with its pivot toward next-generation products (NGPs)-positions it as a compelling case study for investors seeking long-term capital preservation and income.

Strategic Share Buybacks: A Pillar of Value Enhancement

Imperial Brands has announced a GBP1.45 billion share buyback for fiscal 2026, to be completed by October 28, 2026, in its H1 2025 results, as part of an "evergreen" program extending through FY30. This follows a GBP1.25 billion buyback initiative launched in October 2024, with a GBP625 million tranche executed in May 2025, according to a Valens Research note. The company's rationale is clear: to return surplus capital to shareholders while maintaining a net debt to EBITDA ratio between 2.0 and 2.5x, as noted by Valens Research. By reducing the number of shares in circulation, these buybacks aim to boost earnings per share (EPS) and signal confidence in the company's ability to navigate regulatory and market challenges.

The financial discipline behind these programs is noteworthy. Imperial Brands has allocated GBP2.7 billion in capital returns (dividends and buybacks) for the coming financial year, representing 11% of its current market capitalization, the H1 2025 results show. This approach aligns with defensive investing principles, which prioritize companies with strong balance sheets and consistent cash flows. For context, the tobacco sector's inelastic demand-driven by addictive products-ensures steady revenue streams even during economic downturns. During the 2008 global recession, for example, Japan Tobacco International's cigarette sales rose by 10.8%, while Altria's gross turnover increased by 15.2%, figures highlighted in the Valens Research note. Such historical resilience reinforces the sector's appeal to risk-averse investors.

Defensive Investing in a Stable Sector

The tobacco industry's defensive characteristics are amplified by its ability to generate stable cash flows. Imperial Brands' recent performance exemplifies this. In the first half of 2025, the company reported strong pricing power and market share gains in key markets like the U.S., Germany, and Australia, despite declines in the UK and Spain, as outlined in the H1 2025 results. Its NGP segment-comprising heated tobacco, e-vapor, and modern oral nicotine-has become a critical growth driver: e-vapor revenue grew by 14%, heated tobacco by 49%, and modern oral nicotine by 61% in the recent quarter, according to the company's FY24 results. These figures highlight the company's adaptability to regulatory shifts and consumer preferences, a key factor in sustaining long-term value.

Moreover, the sector's appeal as a defensive investment is underscored by its consistent dividend yields and capital return strategies. Imperial Brands' buybacks, alongside its dividend payouts, reflect a disciplined approach to shareholder returns. Analysts note that while regulatory pressures remain a concern, the market has largely priced in these risks, allowing tobacco stocks to retain their defensive allure, as discussed in a Proactive Investors piece. This is particularly relevant for investors prioritizing income, as the sector's cash-generative model ensures reliable payouts even amid macroeconomic uncertainty.

Balancing Risks and Rewards

Critics of tobacco investing often cite ethical concerns and long-term sustainability challenges. However, Imperial Brands' strategic pivot toward NGPs-products perceived as lower-risk alternatives to traditional cigarettes-addresses some of these issues. The company's NGP revenue surged to GBP335 million in the recent quarter, a 26.4% increase, the FY24 results show, demonstrating its commitment to innovation. While regulatory hurdles for NGPs persist, their growth trajectory suggests a viable path for long-term value creation.

For defensive investors, the key lies in balancing these risks with the sector's inherent stability. Imperial Brands' buyback programs, combined with its NGP expansion, offer a dual strategy: reducing share counts to enhance EPS while diversifying into products that align with evolving consumer and regulatory trends. This duality is rare in defensive sectors, where companies often face trade-offs between short-term returns and long-term adaptability.

Conclusion: A Model for Defensive Portfolios

Imperial Brands' share buyback initiatives and NGP investments illustrate a robust approach to value enhancement in a stable sector. By returning surplus capital to shareholders and adapting to market dynamics, the company reinforces its position as a defensive investment. For investors seeking resilience amid economic uncertainty, the tobacco sector-led by strategic players like Imperial Brands-offers a compelling blend of income, capital preservation, and growth potential.

As the company progresses through its GBP1.45 billion buyback in 2026, the H1 2025 results suggest the market will likely continue to reward its disciplined capital allocation. In a world where volatility is the norm, Imperial Brands' strategy serves as a reminder that defensive investing is not about avoiding risk but managing it with foresight and precision.