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8% dividend yields! Should you buy this FTSE 100 dividend stock in an ISA?

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Some better-than-expected trade data from China overnight has buoyed investor sentiment on Tuesday. Investors need to be braced for more turbulence on share markets, obviously. But there’s a broad bunch of brilliant FTSE 100 dividend stocks that look to0 good to miss at current prices.

British American Tobacco (LSE: BATS) isn’t a large cap I’d buy today, though. As I explained in a piece about Imperial Brands today, ‘Big Tobacco’ might be performing resolutely during the Covid-19 crisis. But the steady global decline in smoker numbers makes such firms highly unattractive share buys, at least to this Fool.

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In an early morning announcement, BATS reported the pricing of its $2.4bn bond offering to strengthen its balance sheet. It said that the funds would be used “for general corporate purposes, including the potential repayment of upcoming maturities.”

The move to strengthen its finances isn’t the only similarity the Footsie firm has with its industry rival, though. It has also announced recently that trading has remained robust despite the coronavirus outbreak. A fortnight ago it declared that “we have seen no material impact” while celebrating its “geographically diversified supply chain from both a manufacturing and distribution standpoint.

Vanishing vape sales

I am unmoved by both firms’s resilience in these tough times, however. Legislators continue to ramp up efforts such as public smoking bans and marketing restrictions to keep global cigarette sales on the back foot. It’s a drive that saw British American Tobacco sell 4.4% fewer sticks in 2019 versus the previous year, and casts a cloud over the firm’s profits outlook in the near term and beyond.

I’m concerned, too, by signs of cooling demand for British American Tobacco’s tobacco-heated products (THPs) like its Vype e-cigarette. Sales of these ranges rose a healthy 31.6% last year. However, this represents a huge slowdown from recent times. Annual volumes of THP consumables rocketed 217% in 2018.

The trading environment is becoming more and more difficult, too. Market research specialist Technavio has predicted that 40% of e-cigarette growth during the next five years will come from North America. Rising restrictions on their sale all over the US threatens to derail such forecasts, however.

British American Tobacco also faces the spectre of nosediving demand in key Asian markets. India banned e-cigarettes entirely last year and a number of its continental neighbours have followed suit.

Cheap but risky

Health concerns around these new technologies continue to rise, too, casting doubt on their ability to replace the lost revenues created by falling cigarette demand. The British American Tobacco share price has almost halved during the past three years, and there’s little reason at present to expect it to bounce back.

Forget about its rock-bottom forward price-to-earnings (P/E) ratio of 8 times and bulky 8.2% dividend yield for 2021, I say. This is a share that, in spite of reassuring news this month, still carries too much risk. It’s one I certainly plan to keep avoiding.

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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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