The FTSE 100 is home to some of the most generous dividend-paying shares in the market. For income investors, the ex-dividend date is one of the most important events in the calendar.
Buy a stock before that date, and the next dividend payment is locked in (usually within one to two months). It can be a clever way of picking up a slice of income in the short term, while potentially gaining long-term exposure to a quality business.
In the next 30 days, three high-yielding blue-chip stocks are going ex-dividend. M&G on 11 September, Unite Group on18 September and British American Tobacco (LSE: BATS) on 2 October.
All three companies are strong dividend payers, but British American Tobacco stands out with an exceptionally long track record of payments.
Is it worth a closer look before the cut-off date?
A long history of payouts
British American Tobacco has been paying dividends consistently for more than 20 years. Once one of the highest yielders in the entire FTSE 100, a rising share price has pulled its yield down. That may make it look less appealing compared to heavyweights like Legal & General or Taylor Wimpey, which still offer yields close to 10%.
But the stronger share price should not be ignored. It suggests investors are regaining confidence in a business that has often been criticised for its lack of innovation in a highly regulated industry.
Through it all though, British American Tobacco has maintained an unwavering commitment to shareholder returns. Dividends have grown at an average annual rate of around 5% for more than two decades, and the company remains solidly profitable with an 18% operating margin and £3bn in net income in its most recent results.
The risks to watch
There are still risks attached to this stock. The cost of transitioning to less harmful smoking alternatives has been steep. Although the company reduced its debt by 7% last year, it still sits at £35.2bn – lower than its equity base, but high relative to its cash flow. Should profits take an unexpected hit, that debt pile could become harder to manage.
The regulatory backdrop is another ongoing concern. Tighter restrictions on tobacco marketing and product sales could weigh on revenue growth, and any additional compliance costs would eat into margins.
Investor sentiment was also shaken last month by the abrupt and unexplained resignation of chief financial officer Soraya Benchikh. With no official reason given, the move left some shareholders nervous about potential issues behind the scenes.
My verdict
For all its challenges, British American Tobacco still looks like one of the more reliable dividend plays on the FTSE 100. The company has strong earnings, a steadily falling debt position and one of the best long-term dividend track records in the market.
While there are higher-yielding shares available, I think this one is worth considering ahead of its ex-dividend date.
Tobacco might one day be phased out entirely, but demand for less harmful alternatives is growing fast. That could give the company enough fuel to keep those dividends flowing for years to come.
