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Should you buy these cheap FTSE 100 6%-plus dividend yields for your ISA today?

CORRECTION: This article originally misstated that British American Tobacco’s e-cigarette brand was named Blu, rather than Vype. 

British American Tobacco’s (LSE: BATS) share price performance so far in 2019 would suggest anything but a company in crisis. It may have trended marginally lower following an explosive start to the year, but the cigarette colossus remains 13% more expensive than it was at the turn of January.

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A glance at the FTSE 100’s low valuation tells a very different story, however. At current prices it sports a P/E ratio of 8.7 times for 2019, reflecting the steady decline of its traditional combustible product class and more recently concerns over the future of the e-cigarette segment.

Demand slump

Indeed, it’s the raft of negative news flow surrounding the latter area that concerns me that British American Tobacco’s share price will ape that of Imperial Brands and before long begin to sink. Latest retail data from Nielsen showed the rate of sales growth of e-cigarette products in the US drop 10% year-on-year in the four weeks to September 21. And it’s likely that demand will keep slumping as fears that vaping technologies are contributing to fresh cases of lung disease grows.

There’s no denying that British American Tobacco still has the comfort of brilliant brand power through monster cigarette brands like Lucky Strike, Dunhill and Pall Mall, cartons which enabled it to record a 0.1% market share increase in key markets in the first half. However, these titanic labels couldn’t stop group stick volumes from plummeting 3.5% year-on-year, matching declines in the broader tobacco market. There’s little the business can do to protect itself from this sea-change in consumer habits.

And while the company has ploughed a fortune into creating and developing its Vype e-cigarette brand, it’s possible that sales here will get stubbed out too as global lawmakers put these new technologies in their crosshairs. So forget about that cheapness as well as British American Tobacco’s 7.5% forward dividend yield, I say, and avoid this stock like the plague.

Iron giant

I certainly wouldn’t encourage those scouring the Footsie for big yields to buy BHP Billiton (LSE: BHP) either. The diversified mining giant offers a gigantic 6.9% payout yield, though this isn’t the only reason why it catches the eye — at current prices it trades on a bargain-basement forward P/E ratio of 9.9 times.

Despite its cheapness, I’m still not prepared to take the leap, however. BHP is best-known for the colossal amounts of iron ore it ships from Western Australia, a commodity from which it sources around 55% of total earnings. And with the global economic downturn hitting steel demand, and ore supply from Australasia and South America hotting up, the outlook for prices of the steelmaking ingredient look less than robust.

Of course the worsening outlook for steel producers casts a pall over future coal demand, another critical material for BHP’s bottom line, while the supply/demand outlook for the company’s copper operations is also pretty alarming (to put it mildly). Its problems numerous and thus its shares also in danger of sustained weakness, I think this is one income share that’s best avoided, despite its cheapness.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands. 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.

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