I’d invest £7,150 in this FTSE 100 stock for £500 in annual passive income

I am looking for new dividend opportunities from the ranks FTSE 100 stock. Investing in companies that offer attractive deals is a great way to earn a second income from the stock market.

A Footsie stock is important to me because of its 7.03% dividend yield and cash-generating business model. I am referring to the tobacco giant Imperial brand (LSE:IMB).

Here’s how I’m targeting £500 in passive income per year by investing in companies.

Passive income from dividends

In the last month, the share price of Imperial Brands changed to +31%. Today the share price is from 20.08 Euro.

At the current price, I could buy 356 shares for £7,150. That would leave me with £1.52 in spare change. Currently, Imperial Brands shares of this size will generate £502.54 per year in passive income. That’s more than I can expect from most of them FTSE 100 shares, considering the average yield of the index is 3.59%.

The company maintains a progressive dividend policy as it happens, in addition to increasing shareholder value through a £1bn share buyback program due to end in September. Last year, the business distributed £1.32bn in dividends.

Of course, no dividends are guaranteed. However, the firm’s cash position appears to be very strong, indicating a steady bumper payout. The company delivered nearly £2.6bn in free cash flow last year. This translates to an adjusted operating cash conversion of 102%, up from 83% in 2021.

Where next for Imperial Brands stock?

I see this stock as a useful hedge against very high inflation, given the company’s strong pricing power. After all, cigarette consumers have become accustomed to larger-than-inflation price increases over the years due to ever-increasing cigarette taxes.

Imperial Brands enjoys a top three position in terms of market share in the five largest markets. Collectively, they account for more than 70% of the company’s operating profit. Due to the importance of the business, it is encouraging that the company generates market share in four of the five main countries.

The main challenge facing businesses is the prospect of increasingly stringent legislation to limit the public health impact of smoking. To combat this threat, many tobacco companies are increasingly concentrating on a number of risk-reducing products, including vapes and smokeless cigarettes.

In this regard, I think Imperial Brands needs to step up. It is some way behind the competitors like British American Tobacco. Competitors really have enjoyed more success with its Vuse Steam products from Imperial Brands have managed with comparable blue product. Of course, Imperial Brands is better with oral nicotine Zone X some, but this remains a small market.

Should I buy this stock

Despite some rather cloudy challenges, if I had the money, I’d buy Imperial Brands stock right now.

The company continues to make huge profits from its combustible tobacco business and its dividend yield is hard to beat.

With a strong cash flow, a large share buyback program, and a strengthening presence in the top five markets, I think this FTSE 100 stock looks like a solid investment for me today.