The FTSE 100 continues to struggle for traction as concerns over the lasting Covid-19 crisis linger. With virus variants emerging and infection rates still climbing in many regions concerns over the economic recovery remain quite elevated.
It’s clear that UK share investors like me need to be extremely careful before splashing the cash. They certainly shouldn’t invest any money they can’t afford to lose. But I for one don’t plan to stop buying for my own Stocks and Shares ISA any time soon. Indeed, the profits outlook for many FTSE 100 shares alone looks quite robust despite the uncertain economic outlook.
This FTSE 100 share’s mighty dividend yields has certainly attracted my attention. Should I buy it for my ISA before the 5 April deadline for this year’s £20,000 allowance?
Going up in smoke
It could be said that tobacco product manufacturers like British American Tobacco (LSE: BATS) are ideal stocks for times like these. The addictive nature of their products mean that their earnings remain much more stable during economic downturns that most other UK shares. Indeed, this particular FTSE 100 operator saw pre-tax profits rise almost 10% in 2020.
However, as a long-term investor I won’t be tempted to buy British American Tobacco. The tobacco market remains in structural decline and I expect sales of combustible nicotine products to keep falling as public awareness around their health dangers rise. Demand for Big Tobacco’s goods are also suffering as lawmakers continue to introduce legislation restricting the sale, usage and marketing of cigarettes and similar products.
British American Tobacco saw its revenues fall 0.4% in 2020 as volumes of its combustible products dropped 4.5%. The FTSE 100 firm is predicting that volumes across the entire global industry will fall an extra 3% in 2021 too.
Investing for growth
I don’t quite think that tobacco titans like this are dead and buried quite yet, though. British American Tobacco has invested huge sums in e-cigarettes and tobacco heating products to offset the decline in its traditional product lines and drive future earnings. Sales of new products like its glo and Vype brands rose a healthy 15% in 2020.
What’s more, British American Tobacco’s ‘Beyond Nicotine’ drive has seen it enter the fast-growing legal cannabis market. Last week the FTSE 100 company paid £126m to invest in Canadian cannabis producer Organigram. Some analysts think the legal market will grow at a compound annual growth rate of nearly 18% until 2027.
A FTSE 100 share I’d avoid
British American Tobacco is certainly taking a proactive and ambitious approach to diversifying from its traditional markets. But still think the company is a risk too far. Remember that the lion’s share of revenues still come from its combustible goods. And legislators are tightening the grip on where its vaping products can be used and sold too.
For these reasons I’m happy to look past British American Tobacco’s gigantic 9% dividend yield and low forward price-to-earnings (P/E) ratio of 9 times. I’d much rather buy other FTSE 100 shares for my ISA today.
