If you like high-yield investments, you’ve probably had both British American Tobacco(NYSE: BTI) and Kraft Heinz(NASDAQ: KHC) pop up on your screens. There are things to like about each, things not to like, and one big difference that should lead investors to make a clear choice between them.
Here’s what you need to know and why lower-yielding stocks are probably the better choice for most investors.
If your focus is solely on the dividend, the best choice here is British American Tobacco. It starts with yield. British American Tobacco provides investors with an 8.4% dividend yield. Kraft Heinz’s dividend yield is a much lower 5.5%. Of course, this is relatively high compared to S&P 500 index, which brings only 1.2% and the average supplies of consumer stapleswhich yields 2.8%, but is clearly nowhere near as attractive on an absolute basis as 8.4%.
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There is also a big difference between the dividend results of Kraft Heinz and British American Tobacco. Kraft Heinz cut its quarterly dividend in 2019 from $0.625 per share to $0.40 per share and the payout hasn’t grown since. British American Tobacco’s quarterly dividend has been rising steadily, in the UK company’s home currency, since it began paying quarterly dividends in 2018.
If dividends are all you care about, British American Tobacco is the obvious choice here. But dividends alone do not give the full picture.
Exalted dividend yields in the offer of these two consumer companies exist because each faces business problems. This is where most investors should focus their attention if they intend to hold any of these stocks for the long term.
Kraft Heinz was created by the merger of Kraft and Heinz. The original goal of food manufacturers was to reduce costs in order to increase profits. This is not a good long-term business approach and a new direction was needed very quickly.
Now, after a management restructuring, the company is focusing on growing its most important brands and trying to sell brands that don’t make as much sense for the top and bottom line. This is an approach that has worked well for a number of other companies, but for Kraft Heinz it’s going slow right now. In fact, the brands the company focused on performed worse than the brands it didn’t focus on.
No shock, the stock was in a meltdown and the yield is high. But given the kind of success competitors love Procter & Gamble and Unilever had with the same approach, it seems likely that Kraft Heinz will get through this difficult situation with plenty of time.
British American Tobacco’s problems run much deeper. The company’s primary product is cigarettes. The company’s cigarette volume has been falling for years. To put some numbers on it, in 2018 the company produced approximately 700 billion cigarettes. That number decreased to 555 billion in 2023. And while data for the full year 2024 is not yet available, the number is likely to have fallen again given the continued weak volumes in the first half of the year.
British American Tobacco is making up for ongoing volume declines with continued price increases. But that can only last so long before rising prices exacerbate falling volumes.
In fact, British American Tobacco has even changed the way it displays its American cigarette brands. Although it’s a bit arcane, basically brands are treated as if they’ll be worthless in about 30 years. That doesn’t bode well for the future and points to deep problems facing the company, even though the stock is up more than 15% in the past year.
The ugly truth is that neither British American Tobacco nor Kraft Heinz are doing particularly well today from a business perspective. Conservative dividend investors will likely want to tread carefully with both companies.
But if you’re choosing between the two, Kraft Heinz seems to be the better bet. After all, no one has to smoke a cigarette, but everyone has to eat food. Given the strong brands controlled by Kraft Heinz, it seems more likely to get back on track compared to British American Tobacco, where its most important brands could be headed for obsolescence.
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Reuben Gregg Brewer holds positions at Procter & Gamble and Unilever. The Motley Fool recommends British American Tobacco Plc, Kraft Heinz and Unilever 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.
