UK-based cigarette manufacturer British American Tobacco PLC (GB:BATS) is among the top income stocks on the FTSE 100 index, offering a dividend yield of 8.32%. The company is known for its solid track record of stable dividends for the last 25 years, making it a favourable option for income investors. While near-term pressures could limit the upside in the company’s stock price, BATS continues to be an attractive dividend stock offering consistent dividends with a high yield.
Looking ahead, the company is dedicated to maintaining its dividend policy and aims to generate approximately £40 billion in free cash flow before dividends over the next five years. In 2023, free cash flow increased by 3.9% to £8.4 billion compared to the previous year. This highlights its continued strength as a reliable income choice for investors.
British American Tobacco is a global corporation that manufactures and sells cigarettes, tobacco, and nicotine products. It owns several well-known brands, including Dunhill, Camel, and Newport.
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BATS’ Attractive Dividends
Along with its annual results for 2023, BAT declared an interim dividend of 235.52p per share, which was 2% above the interim payment in the prior corresponding period. This dividend is scheduled to be distributed in four equal quarterly installments, with two remaining payments of 58.8p per share each due in November 2024 and February 2025.
Before this, two installments were paid in May and August 2024.
Operational Struggles Persist
In recent years, British American Tobacco has faced challenges in boosting sales in key markets like the U.S., as the traditional cigarette market slows down. Additionally, cash-strapped consumers have moved from premium cigarette brands to cheaper alternatives or e-cigarettes.
Within its e-cigarette segment, the company has lost market share to a surge in illegal disposable vapes. As a result, the company acknowledged that its New Category revenue might fall short of its £5 billion ($6.4 billion) target for 2025.
Nonetheless, investors were encouraged by some signs of improvement. In its first-half results for 2024, BAT reported a 7.4% growth in New Categories revenue on an organic constant rate basis. Additionally, the company’s cigarette market share is improving, along with the strong performance of nicotine pouches in the U.S.
The company further mentioned that it remains on track to achieve full-year guidance for 2024.
Are BATS Shares a Good Buy?
According to TipRanks consensus, BAT stock has received a Moderate Buy rating based on six Buy and four Hold recommendations. The BAT share price target is 2,880p, which is 3% above the current price level.
Year-to-date, BATS stock has gained 20% in trading.
