British American Tobacco BTI Dividend Stock Analysis


Smoking is good… as long as you are smoking and I hold Tobacco Stocks ;-). At the beginning of the month, I had reviewed Philip Morris International (PM), so I am now looking at a second stock in the Tobacco industry in order to prepare for June’s dividend stock battle: PM Vs BTI; two giants holding cigars and cigarettes in their hands.

The Company Stock Description:

British American Tobacco is a holding company owning investments in several tobacco companies. Their major brands are Dunhill, Kent, Lucky Strike and Pall Mall. Their most popular brand, Dunhill, is sold in 120 countries. Overall, BTI sells its products in more than 180 countries. Note that sales in the US are made via Reynolds American (which BTI owns 42%). 40% of its sales are coming from Europe.

Stock Graph


Dividend Graph

British American Tobacco Dividend

The Company Ratios and Financial Info:


Dividend Metrics:

–          Current Dividend Yield 4.20%

–          5 year Dividend Growth 16.94%

–          1 year Dividend Growth 22.92%


Company Metrics :

–          Sales Growth:  4.75% (9.38% over 5 years)

–          Earnings Growth:  11.29%

–          P/E Ratio: 16.29

–          Payout Ratio: 78.81%

–          Return on Equity: 34.24%


Stock Metrics:

–          Ticker:  BTI

–          Price: $88.48

–          Trend (technical analysis): up trend

Upcoming opportunities and dangers:

The dangers within the tobacco industry have already been discussed in my PM analysis so I won’t repeat this topic. I will actually concentrate this segment to the recent moves made by BTI to keep its sales growth on the positive side.


As with PM, most of BTI’s growth potential lies in emerging markets and acquisitions. In June 2009, BTI bought 85% of Indonesia’s cigarette maker PT Bentoel in a double barreled grow through acquisition and reinforce its position in emerging markets.


More recently, BTI announced that it is about to acquire Productora Tabacalera de Columbia, or Protabaco, for GBP 452 million. This is a nice move as PM owns 51% of the market share in the Colombian market and BTI would grow to 33% with this acquisition. Here again, we can feel the war for gaining market share in emerging markets.


A note on exchange rates…

Since BTI is in 180 markets, it is highly subject to exchange rates fluctuations. For the past 2 years, their finance department did a great job with their hedging strategy and has profited from rate fluctuations. Their ability to manage their exchange rate risks will be another factor to take into consideration in upcoming years. I would bet my 10 cents that they will succeed based on their experience with hedging strategies.


Final Thoughts

Growing company, growing dividends, growing sales… well it’s hard to say that I don’t like BTI! In a declining industry, it seems that BTI is a smart player and will find ways to keep growing for a while. As long as there are new markets to develop and companies to buy, BTI should be an interesting pick.


Disclaimer: I do not hold either BTI or PM.

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  1. says

    Jeremy Siegel once wrote that some of the best long term returns are from “declining” industries, since they pay out more dividends and usually have lower prices. I think cigarette companies are still a good stock to own (if you’re morally ok with them) and would like to one day buy some pm. but this stock is interesting as well

  2. says

    Being in the UK and also being into high yield stocks was interesting to see your article on BAT. An article in the UK version of the fool yesterday showed that 7 of the best perfoming UK based income fund managers had them as one of their top 10 holdings.


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