Given the concept, the original statement can be rephrased as:
If you're a dividend investor, you've probably considered British American Tobacco (BAT) 0.22%, especially if you don't already have it in your portfolio. As a dividend stock, BAT seems like a great choice with an appealing 7.9% yield. The tobacco giant offers a reliable source of income, especially during economic downturns, making it safer than high-yield stocks like mortgage REITs.
However, BAT's stock performance hasn't been as reliable. Although it's up for the year, it's been flat over the last five years. So, what's in store for 2025? Let's weigh the pros and cons of buying, selling, or holding BAT.
Buy BAT?
The main reason to consider buying BAT is its dividend. The company's dividend payout is secure, and it has a solid history of dividend increases, although the recent increases have been mild.
Another argument for buying BAT is its move into next-gen products. While Philip Morris has had more success in this area, BAT's advancements indicate that it's not far behind.
Despite these positive factors, BAT has faced challenges in the U.S. market. Illegal competition in the vapor market and struggles with its Glo and IQOS competitors have impacted its vapor sales. However, oral nicotine pouches (like Velo) have shown promise, driving growth of 52.4% in the first half of the year.
Sell BAT?
A year ago, BAT had to write down £24 billion on its U.S. cigarette business, including well-known brands like Camel and Newport. This write-down is a clear indicator that the company's core cigarette business is facing headwinds.
Even though smoking rates have been declining slowly in international markets, health concerns and regulatory restrictions will likely continue to impact BAT's growth. The company will have to rely on price increases to drive revenue, which may limit its appeal to investors.
Hold BAT?
Investors might want to consider holding BAT if they're looking for a high-yield stock with reliable earnings. BAT's P/E ratio of 8 suggests that the stock's earnings are already priced in, making it a stable pick for income investors.
Investor Decision
After considering the pros and cons, holding BAT might be the best choice. Its upside potential seems limited, but its high-yield income and recession-proof business make it a reliable pick for dividend investors. However, BAT's shift towards next-gen products could result in unexpected growth if they gain traction in the market.
Given the current market landscape and BAT's financial performance, it might be wise to explore opportunities for investing in alternative areas. Perhaps diversifying your portfolio by allocating some funds towards other dividend-paying stocks or investment options in the finance sector could yield better returns.
Moreover, considering BAT's steady dividend payouts and its foray into next-generation products, you could consider reinvesting the dividends back into the company to potentially capitalize on its potential growth in the long term.
