One of the world’s largest tobacco companies, British American Tobacco, boasts a diverse portfolio of iconic brands such as Camel, Newport, and Lucky Strike, alongside innovative products like Vuse e-cigarettes and Velo nicotine pouches. The company’s allure to investors lies in its substantial dividend yield, currently standing at 8.2%, making it an attractive option for those seeking steady income.
Following a robust first-half earnings report and a broader shift towards high-yield tobacco stocks, British American Tobacco’s stock has experienced a notable upswing this year. As we enter the final quarter of 2024, investors are likely pondering the stock’s potential for continued growth in 2025.
A compelling reason to invest in British American Tobacco is its generous dividend yield, which is well-supported by the company’s financials. In a bold move, the company took a $30 billion write-down on the value of its American tobacco brands, demonstrating its commitment to a smoke-free future. With a price-to-earnings ratio of just 8 and an impressive adjusted operating margin of 45.1% in the first half, British American Tobacco appears to be a valuable investment opportunity.
While the company faces challenges in its transition from traditional cigarettes to next-generation products, its revenue from new categories continues to grow, up 7.4%. The success of its Velo oral nicotine product has driven overall growth in new categories, although the competitive landscape and Philip Morris’s dominance in these areas may hinder British American Tobacco’s progress.
For investors seeking a high dividend yield with modest expectations for share price appreciation, holding British American Tobacco may be a prudent decision. The company’s track record of underperforming the S&P 500 suggests that investors should temper their expectations for future growth. Nevertheless, British American Tobacco’s low valuation and high yield make it an attractive option for those prioritizing income generation.
Before making a decision, it’s worth considering alternative investment opportunities. The Motley Fool’s Stock Advisor analyst team has identified 10 stocks with breakout potential, which could generate substantial returns in the coming years.
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