In a time when global markets face increasing volatility, investors are seeking assets that offer both stability and consistent returns. One such standout opportunity is the stock of British American Tobacco plc (BATS). Backed by strong financial fundamentals, high dividend yields, and a long-standing record of shareholder value creation, BATS presents an attractive option for long-term investors. In this article, we’ll explore why BATS deserves a place in your investment portfolio today.
British American Tobacco plc is one of the world’s leading tobacco companies, operating across key markets in the Americas, Europe, Asia-Pacific, the Middle East, and Africa. The company owns iconic brands such as Dunhill, Lucky Strike, Pall Mall, and Kent, and serves millions of customers globally.
With over 50,000 employees and a history spanning more than 120 years, British American Tobacco has demonstrated remarkable financial resilience and operational efficiency.
BATS currently offers a dividend yield of 7.97%, ranking 4th across the entire FTSE 100 index. What’s more, analysts project this figure to increase to 8.24% in the next 12 months. Even during global crises like the COVID-19 pandemic, BATS maintained a quarterly dividend schedule, showcasing its commitment to delivering value to shareholders.
Since 2018, the company has increased its dividend by around 10%, and currently distributes approximately 75% of its earnings to shareholders—resulting in a healthy dividend coverage ratio of 1.3.
Despite delivering record revenue of over £27 billion in 2022—the highest in the past five years—BATS stock has declined by more than 35% over the past year. This disconnect between performance and valuation presents a compelling opportunity for value investors.
The current price-to-book ratio (P/B) of 0.93 suggests that the stock is trading below its intrinsic value. Essentially, for every 93 pence invested, shareholders are receiving £1 in book value—a significant margin of safety for long-term holder
British American Tobacco has raised its dividend for 25 consecutive years, earning it a place among the elite group of “Dividend Aristocrats.” Over the past decade, the average annual dividend growth has been 6.16%, and 5.04% over the last five years.
The company’s dividend payout ratio stands at 59.7% based on free cash flow and 59.6% based on adjusted earnings, with a dividend reliability score of 0.99 out of 1. This marks BATS as a highly dependable dividend-paying stock.
Moreover, analysts expect dividends to increase by an additional 11.01% in the current fiscal year.
In addition to its traditional tobacco offerings, British American Tobacco is aggressively expanding its footprint in the reduced-risk product (RRP) segment, including vapor and tobacco-heating products. This pivot aligns with changing consumer preferences and positions BATS to maintain relevance in evolving markets.
The company is also actively reducing debt, with the debt-to-EBITDA ratio now down to 2.5. Forecasts suggest a 5% increase in earnings this year, and a potential long-term share price appreciation of up to 250%.
According to a consensus of 9 Wall Street analysts, BATS has the potential to double in value within the next three years, offering up to 250% total returns in five years. With one of the highest long-term return prospects in the industry, BATS is even expected to outperform major ETFs and indices such as the Nasdaq.
Thanks to its exposure to essential consumer goods and a global sales network, the company is considered resilient to economic downturns. This makes it a smart choice for conservative investors seeking income and stability.
Investors can consider several approaches to benefit from BATS stock:
Buy-and-hold: Capitalize on dividend income and long-term appreciation.
Dividend reinvestment (DRIP): Compound returns by reinvesting quarterly payouts.
Value investing: Enter positions during undervaluation periods, as seen today.
Given its defensive nature, reliable dividend history, and promising outlook, BATS is well-positioned to be a core holding in diversified portfolios.
British American Tobacco offers the best of both worlds: generous dividends and steady capital appreciation potential. With its commitment to innovation, strategic diversification, and shareholder rewards, BATS stands out as a compelling choice for income-focused and long-term investors alike.
If you're looking to build a resilient portfolio with reliable returns, this might just be the right time to consider adding BATS to your investment strategy.
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