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BAT's high yield overshadowed by falling share price and ethical investment trends

EditorJake Owen
Published 10/22/2023, 03:56 PM
© Reuters.
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British American Tobacco (NYSE:BTI) (BAT) (LSE:LON:BATS) has been grappling with a challenging landscape marked by the decreasing popularity of traditional tobacco products and the rising trend of ethical investments. Even with a generous dividend yield of 9.3%, according to InvestingPro data, significantly above the FTSE 100 average of 3.9%, the company's long-term performance has been lackluster.

Since October 2018, BAT has distributed £10.60 per share in dividends. In this period, its share price has plummeted by 32%. A £10,000 investment made five years ago would now be worth only £6,800, even with yielding £3,212 in dividends.

The company's reliance on traditional tobacco products is proving to be a challenge as these are falling out of favor due to health risks and legislation like Rishi Sunak's law. BAT, in an attempt to counteract this trend, has invested in reduced-risk products. These currently account for just 12% of revenue and face their own set of challenges.

The growth of socially responsible investments could further impact BAT negatively. It is anticipated that by 2025, ethical investments will constitute a third of all assets. This contrasts sharply with companies like Frasers Group, which doesn't pay dividends but saw its share price increase by 150% over the past five years.

While its P/B ratio of 0.8 against a book value of £72.6bn suggests it's undervalued compared to Imperial Brands (OTC:IMBBY)' P/B ratio of 2.5, there are concerns that BAT might be a value trap. Yet, according to InvestingPro Tips, BAT has a perfect Piotroski Score of 9, indicating a strong financial health and profitability. The company also boasts high earnings quality, with free cash flow exceeding net income.

InvestingPro data also shows that BAT has a market cap of 66600.0M USD, and a P/E Ratio of 6.32, which is considerably low, suggesting the stock could be undervalued. The company has also maintained a steady dividend growth, with a rate of 2.99% as per the latest data from InvestingPro.

For those interested in more insights like these, InvestingPro offers additional tips on this page. These tips can provide more detailed insights into the company's performance and potential future trajectory.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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