British American Tobacco (LSE: BAT) shares may have fallen by a third over two years, but this remains one of the best dividend stocks on the FTSE 100.
The British American Tobacco share price rallied after the Covid crash in March, but has since resumed its downwards trajectory. It’s flat after today’s solid half-year report, which showed a 3.3% increase in profit from operations to £5.37bn. This was better than analysts expected. Revenues grew 1.1% to £12.27bn.
Developed markets still deliver 75% of the company’s revenues, and were resilient during the pandemic. Management put this down to “stronger consumption trends, less negative impact of vaping on cigarettes, higher supply chain inventories and an extra selling day.”
However, cigarette volumes continue to fall, down 6.5% in the first six months of 2020, to 310.5bn. British American Tobacco hopes vaping can fill the gap, and revenues jumped 40.8% to £265m. Non-combustibles now deliver 10% of the group’s total revenues.
Meanwhile, the airline industry isn’t the only one hit by travel bans, grounding passengers also hit duty-free sales of cigarettes.
British American Tobacco shares hold firm
Management still reckons revenues will grow between 1% and 3% this year, after previously lowering its target in June. It didn’t make any further changes to earnings guidance today, pleasing investors. This was a solid set of results, given current concerns.
British American Tobacco shares are now trading at a bargain price, just 8.1 times forward earnings. Those earnings may have taken a slight knock during the pandemic, but nothing on the scale suffered by many FTSE 100 companies.
Smoking is still in long-term decline. That could accelerate if we all decide to get healthier in the wake of the coronavirus. More than one million Britons have given up during the pandemic, according to charity Action on Smoking and Health. It will be interesting to see if that’s replicated elsewhere.
This is a top FTSE 100 dividend stock
British American Tobacco is fighting back by further boosting market share, which rose 50 basis points by volume, and 20bps by share. It boasts major brands including Kent, Dunhill, Lucky Strike, Pall Mall, Rothmans, Newport, and Camel.
The £60bn FTSE 100 group still shifts a huge amount of units, and remains a highly cash-generative business. It’s able to run debts of around £44bn without spooking markets. Management calculates that adjusted net debt to adjusted EBITDA will be around 3x by the end of 2021. I’d like to see that come down, but it looks manageable.
The real buzz here comes from the dividend. Management is committed to its 65% dividend payout ratio, which gives you a forecast yield of 8.1%. In today’s troubled dividend market, that’s stunning.
British American Tobacco shares may not be going anywhere right now, but its dividends will take you a long way.
You might also want to look at this.
With global markets in turmoil as the coronavirus pandemic tightens its grip, turning to shares to generate income isn’t as simple as it used to be…
As the realities of ‘life under lockdown’ begin to bite, many of the stock market’s ‘go-to’ high-yielding companies have either taken an axe to their dividend pay-outs… or worse, opted to suspended them altogether – for the near-term at least.
With so many blue-chip and mid-cap companies scrambling to hoard cash right now, where are we income investors to turn for decent yields?
Fortunately, The Motley Fool is here to help…
Our analyst has unearthed what he believes could be a very attractive option for income- seeking investors – a company that, in his view, boasts a ‘reliably defensive’ business model, combined with a current forecast dividend yield of 4.2% to boot!*
But here’s the really exciting part…
This business even has form in riding out this kind of situation, too… having previously increased sales and profits back in 2008 and 2009 when the world was gripped in the deepest economic crisis since the Great Depression.
*Please be aware that dividends are variable and not guaranteed.
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.