Investing in British American Tobacco (LSE: BATS) has recently become a topic of discussion following a 10% drop in share price to £30 after the release of the 2024 results on February 13th. Despite this setback, the FTSE 100 stock has still managed to maintain a 25% increase over the past year, showcasing its resilience in the market. As investors assess this dip, there are several key factors to consider before making a decision:
Reasons for the Share Price Dip:
- £6.2bn set aside for a class action lawsuit in Canada
- Changes in regulations in Australia and tax policies in Bangladesh affecting industry cigarette volumes
- Expected 2% decline in industry cigarette volumes for 2025
These challenges might seem daunting, but they are not unfamiliar territory for the tobacco industry. With changing regulations and lawsuits being constant risks, it’s essential to look at the bigger picture.
British American Tobacco’s Position:
- Sold 505bn cigarettes last year, with popular brands like Dunhill, Lucky Strike, Rothmans, and Camel
- Holds a significant market share in vapes, oral, and heated tobacco
- Despite a decrease in vaping volumes, management remains optimistic about market share growth
Maintaining its status as a large and lucrative business, British American Tobacco generated surplus cash of £7.9bn last year, reflecting its robust financial position in the market. With cash flow comfortably covering the 8% dividend yield, the risk of a payout cut is significantly reduced.
While uncertainties and risks surround the tobacco industry, British American Tobacco presents itself as a compelling investment opportunity for those seeking value and high yield. Considered a cheap, high-yield share, British American Tobacco might just be the strategic addition your portfolio needs for long-term growth and stability.
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