For investors unbothered by "sin stocks," tobacco companies have been solid dividend plays for a great many years. That might be surprising given the concentrated anti-smoking movements throughout the world, but there are still millions of consumers who enjoy lighting up or puffing on a vape regardless.
Because tobacco companies are feeding a habit, they can charge relatively high prices for their products. So it's little wonder that they're so profitable, even in this day and age, and throw off enough cash to pay generous dividends. One prominent example is British American Tobacco(NYSE: BTI). Let's look at its business and calculate how much we'd need to reap $1,000 annually in dividends.
A veteran producer
BAT has a history stretching back more than a century, and a portfolio of familiar brands. This includes Camel, Lucky Strike, and Newport. It also peddles a vape product, Vuse.
While tobacco consumption remains sufficient to prop up an industry, it hasn't escaped the effects of those anti-smoking moves. The sales needle isn't moving much for even the most successful companies in the business; however, what they do sell is high-margin enough to make them typically very profitable, with enviable cash flow.
BAT's annual top line has generally been stagnant this decade, save for a nearly 8% year-over-year rise in 2022. The story is different for its free cash flow (FCF), which has increased every year so far this decade to over 8.7 billion British pounds ($11.3 billion) in 2023. This was more than enough to fund the slightly over 5 billion pounds ($6.5 billion) in dividend payouts.
And now, some math
So let's do our calculations to get that $1,000 figure. BAT's U.S.-listed stock spits out a quarterly distribution of $0.74 per share at present. Multiplying this by four to get an annual amount gives us $2.96. $1,000 divided by that figure equals 338 shares (rounding up). Finally, the current BAT stock price is $32.20 per share, so for that $1,000 in annual dividend payouts we'd need to invest just under $10,884.
Should you invest $1,000 in British American Tobacco right now?
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends British American Tobacco P.l.c. and recommends the following options: long January 2026 $40 calls on British American Tobacco and short January 2026 $40 puts on British American Tobacco. The Motley Fool has a disclosure policy.
