Three compelling motivations to invest in British American Tobacco shares without delay.
In the ever-evolving landscape of the tobacco industry, British American Tobacco (BTI 0.73%) remains a resilient force, thriving despite a decrease in cigarette consumption worldwide and an increased shift towards alternatives like oral nicotine pouches and electronic devices.
British American Tobacco's strength lies in its innovation and focus on high-growth sectors. With popular brands like Dunhill, Lucky Strike, Newport, and Camel, BAT operates in over 150 countries. The company is determined to become a predominantly smokeless business by 2035, and it's making strides toward that goal. In 2024 alone, 18% of BAT's revenue came from its new categories portfolio, a significant increase from the 6% it generated in 2017.
The company's success in smokeless products is evident in its Vuse rechargeable vaporizer brand, which holds the global market leader position, and its glo tobacco stick brand, the No. 2 globally in the heated products category. Outside the US, BAT's Velo brand of nicotine pouches is a major growth driver, ranking as the market leader.
In the first half of 2024, BAT posted 7.4% organic constant currency revenue growth from its new categories, helping balance a 2.6% decline in traditional cigarettes. The company's adjusted earnings per share (EPS) increased by 1.3% year over year, thanks to climbing operating margins. Based on preliminary full-year 2024 company figures, BAT expects low-single-digit organic revenue and adjusted profit growth in constant currency terms.
Looking ahead, management forecasts some "progressive improvement" into 2025 and stronger profitable growth in the mid-single-digit range by 2026 and beyond. This robust and profitable business leaves investors confident in BAT's ability to execute its growth strategy and consolidate its market position, making BAT stock a wise investment choice.
Another compelling reason to invest in BAT is its attractive valuation. With a forward price-to-earnings (P/E) ratio of just 7 times its 2025 Wall Street consensus EPS, BAT shares are significantly undervalued compared to its industry peers, such as Altria Group and Philip Morris International.
Finally, BAT stands out with its attractive high-yield dividend at 8.2%. While dividend yields in this range may raise sustainability concerns, BAT's shareholder distributions are well-supported by its significant free-cash-flow generation and the company's commitment to continued dividend growth.
British American Tobacco is poised for success in 2025 and beyond, with its focus on innovation, high-growth categories, and a compelling valuation. This stock is an excellent addition to a diversified portfolio.
British American Tobacco is actively investing in its new categories, such as vaporizers and nicotine pouches, to become a predominantly smokeless business by 2035. The company's attractive valuation, with a low forward P/E ratio and a high-yield dividend, makes BAT stock an appealing investment opportunity for investors seeking income and growth.
