1 FTSE 100 stock investors might shun, but I’d snap up in a heartbeat!

Some FTSE 100 stocks have fallen foul of investors. However, that doesn’t mean they’re not good investments for me and my holdings.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

FTSE 100 stalwart British American Tobacco (LSE: BATS) isn’t everybody’s cup of tea. This is for reasons that may be obvious to some, but I’ll make them clear shortly anyway.

However, when it comes to investing, I’m in the business of building wealth, and not necessarily following the crowd.

Here’s why I’d be willing to buy some British American Tobacco shares as soon as I have some investable funds.

Should you invest £1,000 in British American Tobacco right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if British American Tobacco made the list?

See the 6 stocks

Health consciousness

It seems the world has awoken from a slumber in recent years and realised smoking is bad for your health. What a shock that is! Anyway, when you couple that with the rise of ESG investing, tobacco firms like British American are now being shunned by many.

The world’s governments are leading the charge to try and dissuade people from smoking, and are pushing hard. There are also constant threats of law changes that could ban the purchasing of certain tobacco products.

Both of these issues are ongoing risks that could dent British American’s earnings and returns, and something I’ll keep an eye on.

With the changing shift in sentiment in recent years, it’s no wonder the shares have struggled. For context, British American shares are down just 5% over a 12-month period from 2,603p at this time last year, to current levels of 2,457p. Not bad, right? Well, looking back further, they’re down 55% over a seven year period from 5,530p, to current levels.

Created with Highcharts 11.4.3British American Tobacco P.l.c. PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Dividend king!

With my goal of building wealth, it’s hard to ignore the passive income opportunity that British American Tobacco offers, as well as its past track record. Although I understand that past performance is not an indicator of the future, the business has raised its dividend for years now. I can’t see that slowing anytime soon.

At present, the shares offer a dividend yield of 9.4%. For context, the FTSE 100 average is 3.8%. However, I do understand that dividends are never guaranteed. Plus, the shares trade on a rock-bottom valuation, with a price-to-earnings ratio of just six.

With low cost, high prices, and such strong brand power, as well as humongous reach, it’s not hard to understand why the tobacco giant has been a dividend-seekers’ favourite in the past. It still is to many at present as well.

But what about the threat of increased regulation? Well, in my view, such regulation could take a long time to come to fruition. By this, I mean the type of timescale that could allow me to bag plenty of dividends. We’re talking years, if not decades.

Furthermore, British American is realising the need to pivot its approach due to the threat of bans. Its alternative tobacco products seem to be flying off the shelf. This new revenue stream could continue to support earnings and generous returns too.

To summarise, the fundamentals and passive income opportunity, look enticing. The threats are credible, but the opportunity to build wealth through dividends is too attractive to miss out to me.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Sumayya Mansoor has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco P.l.c. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our best passive income stock ideas

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

Can Aston Martin shares make it through to end of the year?

Aston Martin shares have slumped as the iconic brand has faced challenge after challenge following the pandemic. Will it survive…

Read more »

Investing Articles

£5,000 in savings? Here’s how an investor could aim for £12k annual passive income

With just a modest lump sum of savings and small monthly contributions, an investor could work toward a decent passive…

Read more »

Investing Articles

£9K of savings? Here’s how an investor could target £490 a month of passive income

Taking a long-term approach based on buying quality shares, our writer shows how someone could use £9k to unlock sizeable…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’m taking Warren Buffett’s advice for handling volatile stock markets

Christopher Ruane put one of Warren Buffett's well-known investing concepts into action this week amid the market turmoil. Here's how.

Read more »

Investing Articles

Here’s where I think the Lloyds share price could be at the end of 2026

Donald Trump may have clouded the near-term economic outlook, but the Lloyds share price could gain further over the next…

Read more »

Investing Articles

After falling 17% in a month, Tesco shares yield 4.3% with a P/E of just over 11!

Tesco shares have been among the most solid on the FTSE 100. But after being caught up in market turbulence,…

Read more »

Investing Articles

1 beaten-down FTSE 100 share I just bought again — and again!

The FTSE 100's had a rocky few weeks. Our writer has been repeatedly adding to his shareholding in one well-known…

Read more »

Investing Articles

At what point would the Rolls-Royce share price become a bargain buy?

The Rolls-Royce share price was in pennies just a few years ago and has since grown enormously. Is it at…

Read more »