Tobacco Industry’s Best-Kept Secret: Why British American Tobacco Stock is a Smart Buy
Despite the decline in cigarette usage worldwide, the tobacco industry remains resilient, driven by innovation and emerging products. British American Tobacco (NYSE: BTI) has successfully navigated this shift, focusing on high-growth categories and returning an impressive 31% over the past year.
A Global Leader in Smokeless Products
Operating in over 150 countries, British American Tobacco boasts an iconic cigarette brand portfolio, including Dunhill, Lucky Strike, Newport, and Camel. However, the company’s real strength lies in its progress toward becoming a predominantly smokeless business by 2035. In the first six months of 2024, 18% of its revenue came from its new categories portfolio, up from just 6% in 2017.
Vuse and glo: Market Leaders in Vaporizers and Heated Products
BAT’s Vuse rechargeable vaporizer brand is the global market leader, while its glo tobacco stick brand holds the No. 2 position globally in the heated products category. The company is also seeing significant growth in the modern oral segment, where its Velo brand of nicotine pouches is a major driver and market leader outside the United States.
Robust Business with Compelling Valuation
In the first half of 2024, BAT posted 7.4% organic constant currency revenue growth from its new categories, balancing a 2.6% decline in traditional cigarettes. Adjusted earnings per share (EPS) increased by 1.3% year over year, benefiting from climbing operating margins. With shares trading at a forward price-to-earnings (P/E) ratio of just 7 times its 2025 Wall Street consensus EPS, BAT’s valuation is significantly below its industry peers.
Industry-Leading Dividend Yield
British American Tobacco’s 8.2% dividend yield is perhaps the best reason to buy and hold the stock. With a track record of 25 consecutive years of dividend increases, management’s commitment to continued dividend growth makes BAT an excellent income idea.
A Strong Buy for 2025 and Beyond
As British American Tobacco builds operating and financial momentum led by its lineup of smokeless products, the company is well-positioned to deliver positive returns over the next several years. With its diversified global footprint, industry-leading dividend yield, and compelling valuation, BAT stock is a smart buy for investors seeking a profitable and sustainable income stream.
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