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Tag: British American Tobacco

  • Forget Buying a Rental Property: Passive Investors Should Buy This Spectacular Dividend Stock Yielding Close to 10% Instead

    Forget Buying a Rental Property: Passive Investors Should Buy This Spectacular Dividend Stock Yielding Close to 10% Instead

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    Tobacco companies used to be among the darlings of the stock market. With growing cash flows each and every year, they made long-term shareholders a lot of money. But that has changed in recent years.

    Over the last 10 years, British American Tobacco (NYSE: BTI) — one of the largest tobacco/nicotine companies in the world — has produced a total return of negative 6%, while the S&P 500 is up 231%. This includes the robust dividend payments it distributes to shareholders every quarter.

    Today, its dividend yield has risen to just under 10%. With technology stocks pushing to new all-time highs, this forgotten tobacco giant looks increasingly undervalued. Is British American Tobacco an income investor’s dream right now?

    The smokeable business is declining, but cash flows are strong

    British American Tobacco owns some of the longest-standing global cigarette brands. These include Dunhill, Newport, and Camel. While these brands have maintained market share within the cigarette sector for decades, the overall rate of smoking is declining around the globe, which is affecting shipment volumes. To counteract the impact of those volume declines on its financials, British American Tobacco has consistently raised the prices on packs of cigarettes.

    You can see the results of that strategy in the company’s consolidated financials. British American Tobacco’s revenue is actually up 5.7% over the last five years, despite the declining use of cigarettes worldwide. Over the next five years, the company expects to generate over $50 billion in free cash flow. For a company with a market cap of just $68 billion, this shows the potential discounted valuation British American Tobacco trades at right now.

    But these price hikes can’t drive cash flow forever, right? Eventually, most people are going to stop smoking cigarettes. That’s where its new technology products come in.

    Growth can come from new nicotine products

    Almost everyone is aware of the health harms caused by cigarette smoking. So is the executive team at British American Tobacco. That is why they have been working to build and buy other nicotine products to replace cigarettes among the adult population. These include nicotine pouches, e-vapor, and heat-not-burn cigarette devices. These products may have fewer harmful health effects compared to cigarettes.

    Shareholders should benefit, too. The company’s “new categories” segment grew revenue by 21% on an organic constant currency basis in 2023 and should hit $5 billion in annual revenue soon. Of course, since this is a global company, this may be affected by foreign currency exchange rates. This segment finally reached profitability last year, driving a positive contribution profit for British American Tobacco for the first time ever.

    Over the next 10 years and beyond, these new products could drive volume growth for the company and hopefully make up for the eventual profit declines that will arrive in the cigarette business.

    BTI Dividend Per Share (TTM) Chart

    BTI Dividend Per Share (TTM) Chart

    Is the dividend sustainable?

    Volume growth from new products is great. But income investors care about one thing above all else: dividend payments. At today’s share prices, British American Tobacco has a dividend yield approaching 10%. This makes it one of the highest-yielding stocks in the world, which may make some investors skeptical about the payout’s sustainability. 

    When you look at the numbers, it is clear that British American Tobacco actually has plenty of room to maintain its dividend payments at their current level, and will likely be able to grow them in the coming years. Its free cash flow — which is what companies deploy to cover their dividends — was $5.30 per share over the last 12 months. Its dividend is currently just $2.90 per share.

    Even if the cigarette business does worse than expected over the next few years, British American Tobacco has plenty of room to maintain its current dividend payout, so income investors can rest easy owning this cash-generating nicotine giant.

    Should you invest $1,000 in British American Tobacco right now?

    Before you buy stock in British American Tobacco, consider this:

    The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and British American Tobacco wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

    Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $671,728!*

    Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

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    *Stock Advisor returns as of May 28, 2024

    Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco P.l.c. and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.

    Forget Buying a Rental Property: Passive Investors Should Buy This Spectacular Dividend Stock Yielding Close to 10% Instead was originally published by The Motley Fool

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  • British American Tobacco Swings to Pretax Loss on U.S. Cigarette Write-Down — Update

    British American Tobacco Swings to Pretax Loss on U.S. Cigarette Write-Down — Update

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    By Joe Hoppe

    British American Tobacco said it swung to a pretax loss, driven by a previously reported write-down of its U.S. cigarette brands, but backed forecasts for growth in 2024.
    

    

    The FTSE 100 cigarette maker–which houses the Kent, Dunhill and Lucky Strike brands–said pretax loss for 2023 was 17.06 billion pounds ($21.54 billion) compared with a profit of GBP9.32 billion a year prior. It said the swing was largely driven by an impairment of GBP27.6 billion. Of the impairment, GBP27.3 billion relates to pressure on some of its traditional cigarette brands in the U.S., as it shifts focus to smokeless products, it said.
    

    BAT said in early December that its performance in the U.S. had been hindered by smokers switching to cheaper, nonpremium brands and a rise in illegal disposable vapes. The brands being written down included Newport, Pall Mall, Camel and Natural American Spirit, a company spokesperson said at the time.
    

    Adjusted profit from operations edged up to GBP12.465 billion from GBP12.41 billion in 2022. Despite the growth, it skirted under a company-provided consensus forecast of an adjusted operating profit of GBP12.595 billion.
    

    New categories revenue rose to GBP3.35 billion from GBP2.89 billion, missing a forecast of GBP3.46 billion, according to company-provided consensus.
    

    Revenue was GBP27.28 billion compared with GBP27.66 billion, dragged by the sale of its businesses in Russia and Belarus, foreign-exchange pressures and lower cigarette volumes, and partially offset by the increased new categories revenue. Revenue was forecast at GBP27.60 billion, according to consensus provided by the company.
    

    BAT said global tobacco industry volume is expected to decline around 3% in 2024, and it backed prior guidance for low single digit organic revenue and adjusted operating profit growth for the year.
    

    The company said it will invest this year to strengthen its U.S. business, accelerate innovation and enhance its capabilities, which it said would weight its performance toward the second half.
    

    “Thereafter, we will progressively build to deliver 3-5% organic revenue, and mid-single digit adjusted organic profit from operations growth by 2026 on a constant currency basis. We are committed to continuing to reward shareholders with strong cash returns throughout this period,” Chief Executive Tadeu Marroco said.
    

    The board declared a dividend of 235.52 pence a share, up from 230.9 pence.
    

    Write to Joe Hoppe at joseph.hoppe@wsj.com
    

    

    

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    2 No-Brainer Dividend Stocks With Yields Above 9% to Buy Now and Hold at Least a Decade
    
			
    2 No-Brainer Dividend Stocks With Yields Above 9% to Buy Now and Hold at Least a Decade
    
			
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    Selecting investments that outperform can be a complicated process, but it doesn’t have to be as difficult as many folks in the finance industry make it seem. Elementary-school arithmetic is enough to see how buying dividend payers is an easy way to build a successful stock portfolio.
    

    During the 50 years between 1973 and 2022, dividend-paying stocks in the benchmark S&P 500 index delivered a 9.18% average annual return. Stocks that didn’t pay dividends produced an average annual return of just 3.95% over the same time frame, according to Hartford Funds and Ned Davis Research.
    

    

    

    

    Pair of individual investors shopping for stocks to buy. 
    

    

    

    Image source: Getty Images.
    

    

    Cigarette smoking has been declining steadily for decades, but heavy marketing restrictions make it impossible to attack established brands. The price-raising power these companies get from their established brands and rising sales of new noncombustible products allowed them to steadily raise their payouts for decades.
    

    In the U.S., cigarette sales volumes declined rapidly in 2023 because of competition with disposable vaporizers that are unauthorized by the FDA. A stock market worried about illicit vaporizers has knocked these stocks down so low that they offer dividend yields above 9% right now.
    

    Here’s why they look like no-brainer stock picks for investors who want heaps of dividend income with relatively little risk.
    

    Altria Group
    

    Altria Group (NYSE: MO) sells the leading Marlboro brand in the U.S., and that’s not all. Its investment in Juul didn’t work out, but its next attempt at cornering the e-vapor market could drive total sales to new heights.
    

    Last June, Altria acquired NJOY, the only pod-based e-vapor product approved by the Food and Drug Administration (FDA). With help from America’s judicial system and government regulators, NJOY could be a big growth driver for Altria in 2024 and beyond.
    

    Altria’s legal team began flexing its muscles last October, with 34 suits against distributors and retailers of illicit e-vapor products in California. In December, the FDA stepped up enforcement of its ban on flavored e-vapor products by seizing 41 shipments of illegal e-cigarettes, in collaboration with Customs and Border Protection.
    

    

    During the first nine months of 2023, Altria reported domestic cigarette shipments that fell 10.5% year over year. Higher prices for Marlboros and increasing sales of non-smokable products allowed the company to record revenue net of excise taxes that fell just 0.8% over the same time frame.
    

    Improved margin and a reduced share count helped Altria report adjusted earnings that rose 3.3% during the first nine months of 2023. A bottom line that keeps on rising despite declining cigarette volumes gave the company confidence to boost its dividend payout by 4.3% last summer.
    

    At recent prices, Altria stock offers a 9.5% dividend yield and the peace of mind that comes with 54 consecutive years of payout raises. It probably won’t be the fastest-rising payout in your portfolio, but there’s a good chance we’ll see steady raises for at least a decade.
    

    British American Tobacco
    

    Shares of British American Tobacco (NYSE: BTI) offer U.S. investors a 9.3% yield at recent prices. The payments that American investors receive fluctuate with currency exchange rates, but the company has raised its dividend payment in British pounds every year since switching to quarterly installments in 2018.
    

    With brands like Camel in the U.S. and Dunhill abroad, British American Tobacco’s combustible cigarette volumes are declining at a slower pace than Altria’s. The company still hasn’t reported combustible volume from the second half of 2023, but in the first half, volume declined by 5.8%, which it easily offset by raising prices.
    

    In the U.S., the FDA has been trying to ban the sale of menthol-flavored cigarettes for over a decade, and it’s getting close. That doesn’t bode well for U.S. sales of the company’s Newport brand.
    

    Luckily, new category sales are rising fast enough to offset declining cigarette sales once a long-awaited national menthol ban takes effect. British American Tobacco’s e-vapor product, Vuse, is available in 59 markets and driving new category sales growth. New category sales rose 27% year over year in the first half of 2023. Thanks to continued strength from new products, management expects to report annual organic revenue that rose about 3% overall last year.
    

    British American Tobacco reported $11.9 billion in free cash flow during the 12 months ended last June. That was nearly twice the amount necessary to make its last four quarterly dividend payments. That gives the company plenty of room for error as it deals with illicit e-vapor products and a potential loss of menthol cigarette sales in the U.S. market.
    

    Should you invest $1,000 in Altria Group right now?
    

    Before you buy stock in Altria Group, consider this:
    

    The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Altria Group wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
    

    Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than tripled the return of S&P 500 since 2002*.
    

    See the 10 stocks
    

     
    

    *Stock Advisor returns as of January 8, 2024
    

     
    

    Cory Renauer has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco and recommends the following options: long January 2024 $40 calls on British American Tobacco, long January 2026 $40 calls on British American Tobacco, and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.
    

    2 No-Brainer Dividend Stocks With Yields Above 9% to Buy Now and Hold at Least a Decade was originally published by The Motley Fool
    

    

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    Cigarette Giant BAT Sees $31.5 Billion Write-Down on U.S. Brands
    
			
    Cigarette Giant BAT Sees $31.5 Billion Write-Down on U.S. Brands
    
			
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    Updated Dec. 6, 2023 5:14 am ET
    

    

    

    

    

    

    

    

    British American Tobacco expects a one-off impairment of $31.5 billion this year due to pressure on some of its traditional cigarette brands in the U.S., as it shifts focus to smokeless products.
    

    The FTSE 100 cigarette maker—which houses the Kent, Dunhill and Lucky Strike brands among its portfolio—said macroeconomic pressures on its traditional cigarette business performance in the U.S. and investments in its noncombustibles business would lead to an accounting noncash adjusting impairment charge of around GBP25 billion.
    

    

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