Where Will Ultra-High Yield British American Tobacco Be in 5 Years?
I issued a bullish rating on British American Tobacco in early 2024, driven by a near double-digit yield and strong fundamentals. Since then, the Stock has outperformed the market. Despite the gains, the yield remains attractive at 8.5% and P/CF multiple below 6x.
Tobacco industry leaders like PM, MO and BTI are investing heavily in smoke-free products to align with health trends and regulatory shifts. Despite declining cigarette sales, strong pricing power and RRP growth support a sustainable outlook.
Recent developments, especially the updates provided on BTI's recent Capital Market Day, have led us to reexamine the stock. Despite progress in new categories, rapid decline in combustibles and slow growth in new products raise concerns about future profit stagnation. Despite a low FWD P/E of 7.5x, we consider the stock fairly priced given the gloomy growth potential.
With a huge 8.4% dividend yield, British American Tobacco throws off a lot of passive income, but there are risks to consider.
The nicotine giant's business faces competing headwinds and tailwinds.
British American Tobacco showed promising new innovations in all three NGP categories on its recent Capital Markets Day. The two-piece Glo Hilo device seems to improve on current consumers' pain points and may be able to compete more effectively against IQOS. The nicotine industry is growing and BTI should be able to grow profits despite trading at a low valuation of less than 8x free cash flow.
Investors are paying too much attention to the rhetoric and not enough attention to actual results.
Election anxiety is reaching a fever pitch, and with stocks up 43% in the last year, many worry that a stock market bubble is about to burst. While the S&P is historically overvalued, individual stocks, including world-class dividend aristocrats, are not. Here are seven of the best ultra-yield aristocrats. They offer an average yield of over 6%, are 19% historically undervalued, and have 30% lower volatility than the S&P.
British American Tobacco has a huge 8.6% yield, which is a pretty enticing figure if you are trying to live off of dividends in retirement.
BTI is expanding in the new categories segment, with a YoY organic sales growth of 7.4% in H1 2024. Regulatory enforcement against illegal vape imports in the US supports BTI's market position. BTI's Vuse holds a 42.1% share in the US e-cigarette market. The company can largely benefit from the growth expected in this market.
British American Tobacco's recent pullback is a good opportunity to buy. It is expected to continue seeing a rising contribution from smokeless products, setting it apart, along with Philip Morris, from other tobacco stocks. Yet, its market multiples are attractive compared to peers, and it has the highest forward dividend yield among them too.