British American Tobacco PLC: 7.2%-Yielding Sin Stock Up 11% YTD
May 16, 2022
Kick Inflation to the Curb With British American Tobacco Stock
If you love investing in socially conscious stocks, British American Tobacco PLC (NYSE:BTI) might not be up your alley. But if you like stocks that have been doing well during the stock market sell-off—and that provide ultra-high-yield dividends that help combat soaring inflation—you might want to consider BTI stock.
British American Tobacco PLC provides various types of tobacco and nicotine products. That doesn’t mean the company isn’t aware of how unsavory tobacco is considered these days. On the company’s web site, it refers to itself as BAT instead of British American Tobacco. The company also uses the tagline “A Better Tomorrow.”
If that helps investors sleep better at night, so be it.
Nevertheless, the company’s $49.0-billion acquisition of Reynolds American Inc. in 2017 helped cement its position as a leader in the combustible tobacco business. Its cigarette brands include “Camel,” “Lucky Strike,” “Pall Mall,” and “Rothmans.” (Source: “Our Portfolio,” British American Tobacco PLC, last accessed May 13, 2022.)
British American Tobacco PLC’s “New Category” Revenue to Keep Rising
People are more aware than they used to be of the health hazards associated with smoking. As a result, British American Tobacco has been making strides to provide less risky methods of consuming nicotine. It has been building a portfolio of “New Category” tobacco and nicotine products, including vapor products, tobacco heating products (THPs), and non-combustible oral products.
Over a short period, the company has transformed into one of the biggest providers of next-generation tobacco and nicotine products.
British American Tobacco PLC’s U.S. non-combustible-product brands include “Camel Snus,” “Kodiak,” “Velo,” and “Vuse.” Its electronic vapor devices are hand-held and battery-powered. Its THPs are hand-held devices that heat tobacco. Its oral products are available both with and without tobacco. (Source: Ibid.)
In 2021, The company’s New Category revenue increased by 42% year-over-year to £2.1 billion ($2.5 billion). British American Tobacco also gained 4.8 million non-combustible-product consumers, its highest ever increase, reaching a total of 18.3 million.
British American Tobacco PLC has targets of £5.0 billion ($6.1 billion) in New Category revenues by 2025 and non-combustible product consumers of 50 million by 2030.
BTI Stock’s Dividend Has Risen Every Year Since 2018
It shouldn’t be a big surprise that a company that sells addictive products makes a lot of money. For 2021, British American Tobacco reported year-over-year revenue growth of 6.9%, led by pricing and New Category revenue growth of 51%. Its full-year net income advanced 6.2% to £7.0 billion ($8.5 billion), or $4.08 per share. (Source: “Year Ended 31 December 2021,” British American Tobacco PLC, February 11, 2022.)
Moreover, the company has provided solid guidance for 2022, including:
- Constant-currency revenue growth of three to five percent
- Significant New Category revenue growth
- High-single-digit constant-currency adjusted earnings-per-share (EPS) growth
The company’s financial position has allowed British American Tobacco stock to provide shareholders with reliable, growing, high-yield dividends. The company has raised the payout every year since it started paying quarterly dividends in 2018. (Source: “Dividends – LSE,” British American Tobacco PLC, last accessed May 13, 2022.)
The company’s May dividend came in at £0.5445 ($0.735) per share, for a yield of 7.2%. The dividend is safe, with a payout ratio of just 73.6.
For American investors, it’s important to remember that, because of currency fluctuation, the actual payout can rise or dip by a hundredth of a cent. Over the last three years, BTI stock’s dividend has risen three times, but its payout in U.S. dollars has risen five times. (Source: “BTI Dividends,” Nasdaq, last accessed May 13, 2022.)
$2.4-Billion Share Repurchase Program
In addition to its frothy dividends, British American Tobacco PLC returns money to investors via share buybacks. In February, the company announced a new buyback program of up to £2.0 billion ($2.4 billion). The aggressive plan started on February 14 and will end no later than December 31.
The company’s strong financial results, growing dividends, and reliable share buyback plan has helped juice the price of British American Tobacco stock. As of this writing, BTI stock is up by:
- 20% over the last six months
- 11.5% year-to-date
- 12.3% year-over-year
Chart courtesy of StockCharts.com
Those are solid gains for a company with a market cap of $96.0 billion. And the gains from British American Tobacco stock are a lot more impressive than those from the S&P 500, which has gone down by:
- 16% over the last six months
- 17.5% year-to-date
- 3.3% year-over-year
The Lowdown on British American Tobacco PLC
A one-time pure-play combustible tobacco giant, British American Tobacco has changed into a leader of New Category tobacco and nicotine consumable products. The company is well on its way to reaching its goals of $6.1 billion in New Category revenue by 2025 and 50 million consumers of its non-combustibles by 2030.
Last year was pivotal for British American Tobacco PLC’s transformation, with its New Category revenue growing by 50% and the total number of its customers jumping by 13.3%. In addition to maintaining growing, high-yield dividends for British American Tobacco stock, the company’s board approved a new share repurchase program for 2022.
