I’m smart enough to understand a high yield doesn’t always equal a good investment. So are British American Tobacco (LSE: BATS) and Vodafone (LSE: VOD) good income stocks for me to buy right now? Let’s dive in and take a look!
What they do and recent performance
British American Tobacco is one of the largest tobacco businesses in the world selling a number of brands across most of the world, with a long track record in the game.
Vodafone is one of the biggest telecoms businesses on the planet with a wide reach and a track record to offer insight to its investment viability.
Looking at the share price, neither stock has had a good time lately.
The tobacco giant’s shares are down 20% over a 12-month period, from 2,848p at this time last year, to current levels of 2,272p.
Vodafone shares have dropped even further during the same time – by 28% to be exact – from 92p, to current levels of 66p.
Bullish and bearish aspects
It’s extremely hard to ignore British American Tobacco’s past track record. It could be argued that the firm is a Dividend Aristocrat. It has generated huge profit and cash hand over fist in years gone by. This has resulted in excellent levels of payouts.
The number of smokers across the globe is only set to rise, according to Statista. The firm’s wide reach and brand power could support performance growth and payouts for years to come yet.
At present, a dividend yield of over 10% is enticing me. However, it’s worth remembering dividends are never guaranteed.
From a bearish view, the looming spectre of changing regulation is a huge worry. This is due to the ill effects on health that smoking causes. A discussion in parliament this week shows that the idea is gaining traction now more than ever. If regulations change, performance and payouts for British American Tobacco could be severely dented.
Let’s move over to Vodafone. An eye-watering dividend yield of over 11% is a standout piece of information for me. However, I think this is mainly due to the falling share price. Plus, the firm recently announced it is cutting its dividend in half, which is rarely a good sign. Continuing the bad news, a pile of debt is a concern too. This can stunt growth, and impact payouts too.
However, it’s not all doom and gloom for the telecoms giant. The potential for growth in emerging territories such as Africa is a green shoot of positivity. This could boost performance and investor returns down the line.
Which would I buy?
If I had to buy one of the two right now, I’d lean towards British American Tobacco.
Changing regulations towards smoking isn’t something that will happen overnight. It could take years, even decades. Plus, the business is still making cash by the bucket load across the world. There’s still plenty of time for me to bag dividends.
Vodafone’s shaky financial situation, cutting of its dividend, and a lack of clear path to address these issues is putting me off right now.
