Some FTSE 100 dividend-paying stocks look like absolute bargains at the moment. Here are two that I purchased recently, and a bonus one from the FTSE 250.
The popularity of reduced harm products, such as vaping devices, has hurt traditional smoking product sales. But, British American Tobacco (LSE: BATS) has been increasing its revenues by gobbling up market share.
The bulk of legal and regulatory battles concerning traditional tobacco products is in the past. The latest hit to the industry is the menthol ban in Europe and some states in the US. There is not much left to regulate now, short of an outright ban on tobacco sales, which is unlikely.
Although the consensus view is that vaping is less harmful than inhaling burning tobacco, the absolute risks of reduced harm products are not well understood. However, the risks of cigarette smoking are well known and publicised.
The market for vaping products is ripe for regulation. This means that smokers may be put off switching as the range of vaping products shrinks and becomes more expensive. Even if vaping use skyrockets, BAT has a compelling range of reduced harm products lined up.
Dividends have grown consistently for BAT shareholders at 4% per year if you ignore the effects of the special dividend paid in 2017. I am confident that growth will continue. BAT recently announced that a biotech subsidiary is developing a potential coronavirus vaccine. BAT may get a reputational boost from this, but more importantly, it serves as a reminder of the level of scientific sophistication at big tobacco companies. If the reduced harm products do dominate, BAT has an edge in developing new products and proving their relative safety.
It’s good to talk
The dividend yield on shares in BT Group has increased from a little under 3% to near 13% over five years, but don’t be fooled. The increasing yield came from the share price falling rather than dividend payouts soaring. However, I believe BT’s share price reflects the woes of recent years.
BT Group can now get on with integrating EE, the mobile network it purchased in 2017, and fully capitalise on its position as the UK’s leading fixed-line and wireless network operator that also delivers content. You can read more about why I like BT here.
Big brand bet
PZ Cussons sells its branded consumer staples across Europe and the Americas, Asia, and Africa. Profits have been trending lower since 2017, mainly due to Cussons’ portfolio of brands becoming bloated and its Nigerian business suffering in a weak economy.
Cussons is now focusing on its core personal care and beauty brands. Shedding a Nigerian dairy business and a small Polish personal care brand are cash-generating steps in the right direction. A new CEO, snatched from Avon with 21 years prior experience at Procter & Gamble, will help with the re-focus.
As Wise Funds asset manager Philip Matthews has pointed out, there is optionality on the Nigerian business. The Nigerian economy either recovers, boosting the value of the business, or it does not. Cussons’ stock price reflects the latter option already. Either way, the stock offers an attractive yield of around 4.5% assuming no cuts, and the balance sheet is healthy.
James J. McCombie owns shares in British American Tobacco, BT Group and PZ Cussons. The Motley Fool UK owns shares of PZ Cussons. 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.