The Motley Fool

Why I’ve been buying this high-yield share in 2020

Image source: Getty Images.

Who would say no to more income? Whether saving for retirement, or just keen to splash a little extra cash in the next few months, increasing one’s income is always attractive. A high-yield share can help do just that.

It’s rare to find a blue-chip share paying a reliably high yield. Today I’ll examine a leading UK company that does exactly that.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Reliable product demand drives sales

The company I like for its high yield of nearly 9% is British American Tobacco (LSE: BATS), a leading global tobacco maker with brands like Lucky Strike and Dunhill. I’ve held its shares for some time already. The reason its dividend payouts are reliable is because, even though a lot of smokers quit each year, the worldwide cigarette market continues to be huge.

That reliable demand has seen the company continue to deliver even during hard times. Even though volume fell 6% in the first half of 2020, revenues increased. Adjusted pre-tax profits rose over 3%. Despite its strong performance, the company’s shares have been unloved this year, falling over a fifth since 2020 began. That has improved its already high yield.

BAT has a portfolio of brands and wide geographic spread. So it is set to continue growing revenues even as cigarette volumes fall in many western markets. Its premium brands also give it pricing power, which helps compensate for falling volumes. The FTSE 100 giant is also building future revenue streams in newer product areas like heated tobacco, where its Glo brand is growing in double digits.

A track record of dividend growth

BAT’s high yield is only part of why I like it as a dividend share. British American Tobacco is one of only a handful of FTSE 100 companies that has increased its annual payout every year for two decades. That means investors can tuck the shares away while the dividends roll in, larger every year.

Unlike some companies that dangle a high-yield with poor business results, BAT’s dividend looks secure. Every year in the past five years, for each pound the company has paid in dividends, it has reported earnings of £1.35. So not only is the dividend adequately covered, there is also substantial room to keep growing dividends in coming years even if earnings stay flat.

As the stock market price has been hit by this year’s market mayhem, the high yield has become even more attractive. Each British American Tobacco share is paying out £2.10 in dividends this year, so BAT currently offers investors a yield of over 8% each year. That will only grow if the company maintains its decades-long policy of annual dividend increases.

This is a bargain price for a quality yield

I have been loading up on BAT this year. The well-covered dividend and high payout level makes it an attractive high-yield share. The company continues to grow revenue and earnings, which bodes well for its future dividend payouts.

With shares near multi-year lows, the already attractive dividend looks juicier than ever. BAT offers an annual return over 8% compared to the average FTSE 100 yield of less than 5%.

I’ve been adding to my BAT holding in 2020 precisely because I see it as such a high-yield bargain.

There’s a ‘double agent’ hiding in the FTSE… we recommend you buy it!

Don’t miss our special stock presentation.

It contains details of a UK-listed company our Motley Fool UK analysts are extremely enthusiastic about.

They think it’s offering an incredible opportunity to grow your wealth over the long term – at its current price – regardless of what happens in the wider market.

That’s why they’re referring to it as the FTSE’s ‘double agent’.

Because they believe it’s working both with the market… And against it.

To find out why we think you should add it to your portfolio today…

Click here to get access to our presentation, and learn how to get the name of this 'double agent'!

Christopher Ruane owns shares in British American Tobacco. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.