A “Set It and Forget It” Dividend Stock with a Juicy 8.8% Yield
Are you searching for a reliable dividend stock that can provide a steady income stream without requiring constant monitoring? Look no further than British American Tobacco (NYSE: BTI), a London-based tobacco giant with a forward-looking dividend yield of 8.8%.
A Well-Established Player with a Diversified Portfolio
British American Tobacco is the owner of several popular cigarette brands, including Kent, Lucky Strike, and Pall Mall. While the majority of its business is conducted outside of the United States, its 2017 acquisition of Reynolds added a range of U.S. brands to its portfolio, including Newport and Camel. The company also offers a range of non-combustible tobacco products, including a heated tobacco option and the Vuse vaping platform.
Navigating the Global Smoking-Cessation Movement
The global effort to reduce cigarette smoking is gaining traction, with the World Health Organization reporting that the proportion of smokers has decreased from one-third of the world’s population in 2000 to around one-fifth today. British American Tobacco itself anticipates a future where cigarettes are no longer the dominant product, aiming to become a predominantly smokeless business by 2035.
A Successful Transition May Not Be Necessary
While the smoking-cessation movement is making progress, it’s not as successful as some might hope. The World Health Organization estimates that there are still around 1.25 billion regular smokers worldwide, and the movement is slowing down. British American Tobacco’s numbers reflect this dynamic, with organic revenue remaining steady despite the shift towards non-combustible products.
Reliable Revenue and Dividends
The sustained demand for tobacco products translates into reliable revenue, which becomes profits, and ultimately, dividends. British American Tobacco has a track record of paying quarterly dividends like clockwork and regularly raising them. Persistent stock buybacks are also bolstering growing per-share profits, which turn into bigger per-share payouts.
A Long-Term Holding with Some Drawbacks
While British American Tobacco is a reliable dividend payer, its dividends are paid in British pounds, which can add to inconsistencies in quarterly payments for U.S. investors. Additionally, the company faces regulatory and social scrutiny, particularly regarding vaping and non-combustible tobacco usage.
A Buying Opportunity
Despite these drawbacks, the company’s beefy 8.8% yield and reliable dividend make it an attractive option for income-seeking investors. With the stock having halved since its 2017 peak, now may be a buying opportunity. Don’t overthink this prospect and miss out on what could become a very fruitful long-term trade.
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