In This Article:
Key Points
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British American Tobacco has a huge 7% dividend yield.
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The dividend has been growing in recent years as the company has increased prices.
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British American Tobacco is a safe harbor for today, but there are long-term issues to consider.
The big draw with British American Tobacco (NYSE: BTI) today is its huge 7% dividend yield. That's nearly three times the consumer staples average yield of 2.5%. And the dividend looks safe, suggesting that investors worried about market turbulence might want to consider British American Tobacco today. But could buying this tobacco giant set you up for life?
British American Tobacco is a high-yield rock in stormy seas
The defining feature of Wall Street today is heightened volatility. Geopolitical issues and tariff uncertainty have investors whipsawing between deep sell-offs and rapid recoveries. Sometimes the market goes up and down by roughly the same percentage in just a couple of days. It's enough to keep a conservative investor up at night with worry.
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That's why British American Tobacco's 7% dividend yield is so attractive. Most investors expect a return of around 10% from the market over time. This tobacco company's yield gets you 70% of the way to that goal. And the dividend has been increased annually since it switched to a quarterly cadence in 2018. (British American Tobacco is European, and prior to 2018 it paid on a semi-annual basis, as do most other European companies.)
The dividend payout ratio was around 55% in 2024, which is completely reasonable for a consumer staples company. That's doubly true given the addictive nature of British American Tobacco's most important product, cigarettes. If you are looking for a stock to own to help ride out today's stormy market, this could be a good choice.
The long term is the problem with British American Tobacco
That, however, is a short-term view of the situation. Stocks frequently get volatile, and regularly have corrections and even fall into bear markets. Historically, the long-term trend has always returned to a steady upward climb after the volatility subsides. Investors that think long term usually prefer to buy companies with good businesses. This is a trouble spot for British American Tobacco.
The main product British American Tobacco sells is cigarettes. To put some numbers on that, smokable products account for roughly 80% of the company's top line. Cigarettes account for just about 97% of the volume in the company's smokeable products group. Cigarettes are by far the most important product for British American Tobacco.