The FTSE 100‘s back where it was before the US administration announced a 10% trade tariff on UK goods. When the shocking news hit in early April, the index fell almost 1,000 points in a few days.
Now back to around 8,500 points, it’s near the same level it was in mid-March. The variation in performance of stocks over this period is a good indication of how different industries are affected by tariffs.
FTSE 100 stock performance
In this instance, there are clear sector-specific winners and losers. Travel-related stocks were among the hardest hit by tariffs, while tobacco stocks, which experienced minimal losses at the time, have since suffered worse losses.
International Consolidated Airlines Group fell sharply when the tariffs were announced, but is now up almost 16% since before the announcement. The FTSE 250 stock Carnival Cruises suffered similar losses but has enjoyed even greater gains since. The most likely explanation for this is falling fuel prices — the largest expense these two companies face.
Meanwhile, tobacco giants Imperial Brands and British American Tobacco (LSE: BATS) are both down by 2%-3% since mid-March.
So why’s tobacco suffering now, and how is it related to tariffs? I decided to find out.
Trade war tensions
The most likely factor contributing to the recent drop in tobacco stock prices is the announcement of tariff reductions between the US and China. The two countries agreed to lower reciprocal tariffs by 115% for 90 days, aiming to de-escalate ongoing trade tensions. While this led to a net positive gain in most global markets, defensive industries like tobacco took a hit.
Why? The environment provides an opportunity for risk-hardy investors to exploit the resulting price fluctuations. Subsequently, many are shifting funds out of stable defensive stocks to take advantage of those more sensitive to tariff changes.
And it’s not just tobacco — other popular defensive stocks such as Unilever, Reckitt and AstraZeneca also suffered minor losses this week.
Those benefiting most from the changes are sectors including technology and consumer goods that are more directly impacted by trade policies.
An opportunity?
British American Tobacco’s falling share price might look attractive to value investors — but does it have long-term potential?
The company’s been grappling with several operational challenges recently, which gives reason for pause. In its latest annual report, it outlined expectations of lower first-half profits, attributed to macroeconomic pressures and the rise of illegal vapor products in the US. Besides this, its venture into the vapor market has faced additional setbacks. Legal challenges have been a key issue, along with increased competition from disposable products in Europe and patent disputes in the US.
These problems have raised concerns about the company’s ability to successfully transition to next-gen product categories.
But with a consistently high yield and one of the best dividend track records on the FTSE 100, it still offers significant value. Currently, with a yield around 8%, dividends have grown at an average annual rate of 5%, with no cuts or reductions in decades.
That’s why it remains one of the top-earning dividend stocks in my passive income portfolio. There are certainly challenges ahead, but for income-focused investors, I think it’s still one worth considering.
