British tobacco(Nyse: bti) He is one of the world’s largest cigarette manufacturers. This puts the company in the consumer stapler sector, as cigarette smokers tend to buy cigarettes no matter what the economic environment looks like. Being in this sector can make a huge 7.5% dividend dividend sound.
Here are three reasons you should be careful.
A great reason for taking care of the future of the British tobacco is directly associated with its most important product, cigarettes. This job is approximately 80% of the company’s revenue. This is a huge number and creates some notable problems that investors might consider.
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The most prominent problem is that the quantities of cigarettes in British tobacco have been falling for years. In 2024. The decline in volume was 5% for cigarettes. In 2023. The decline was 5.3%. And in 2022, the volume of cigarettes fell 5.1%. This is obviously not a bigger job. If any other Consumer company They were faced with the fall of volumes like the investors would probably quickly move to another section.
But thanks to the great yield of British American tobacco, some investors are often ready to overlook the worse basics of the company’s most important jobs.
To be fair, the job of a British American tobacco cigarette is facing the same winds as most other cigarette manufacturers. So this is not a kind of poor performance. The company clearly knows that there is a problem, which is why it has invested in new companies she hopes to replace cigarettes one day. That’s the right plan.
In the meantime, however, the British tobacco as well as the other tobacco companiesUses reliable demand of cigarettes that will go through the price increase. These price increases help to compensate for the decline in volume and allow a company to support its sublime dividend and high yield payment. In fact, despite the continuous deterioration of business, the British American tobacco increases its dividend. Clear, although maybe unspoken, the goal is to make shares attractive to investors in dividend.
At some point, however, it seems that increase in prices will make the decline in the decline in volume. If, maybe when this type is achieved, a story behind the British tobacco as a stock of revenue could be acidic very quickly.
There is another problem here with a high dividend yield, as some investors may consider it a sign that the stock is cheap. This often happens in the consumer stapler sector given the necessary nature of what most consumer companies are produced. Only cigarettes are not necessary.
And if you deviate and look at the more traditional evaluation tools, such as the price and sale ratio and value ratio, the British American tobacco looks expensive. These two metrics are selected because they are both more stable than earnings. This brings another small pine: in 2023. The British American tobacco took a huge one-time charge because he changed the way he explained his job in the US. The administration basically admitted that this job is likely to be worthless in about 30 years.
Thus, the British American tobacco looks expensive on key measuring data, and his trend of earnings is not currently a useful tool because he influenced his own recognition of the weakness of her fundamental business. This is what investors buy when buying shares of British tobacco for their exalted yield.
It seems probably that British American tobacco can continue to increase prices to compensate for the decline in volumes in the short term. And there is a chance that it can do it long enough to build new business lines to replace cigarettes. But if this outcome does not come true, is that the risk you are willing to take over, especially if you are trying to make a living from the dividend that your portfolio generates?
Given the negative, from the fundamental exacerbation of business to the specific effort to support dividends to evaluate, it looks very very like British American tobacco is not a good option for long -term investors in dividend.
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Reuben Gregg Brewer There is no position in any of the shares mentioned. Motley Fool recommends the British American Tobacco PLC and recommends the following options: long January 2026. 40 USD calls for British American tobacco and short January 2026. 40 USD on the British American tobacco. Motley Fool has disclosure rules.
