British American Tobacco (NYSE: BTI) has seen its shares plummet by a staggering 55% since reaching a peak in 2017. The current dividend yield stands at an enticing 9.4%. For dividend-focused investors, the question lingers – is it the opportune moment to dive in?
Deciphering the answer is far from straightforward.
Analyzing the Downturn in British American Tobacco Stock
When confronted with significant price declines in a stock, investors must first inquire about the underlying reasons. In the case of British American Tobacco, the explanation is quite clear. As one of the largest tobacco producers worldwide, the company operates in a sector where cigarette volumes have been steadily waning for years.
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For instance, British American Tobacco manufactured 700 billion cigarettes in 2018, but this figure plummeted to 555 billion by 2023, marking a 21% nosedive in volumes over five years. Furthermore, in 2023, the company altered the accounting treatment of its U.S. brands, indicating a bleak future for its American cigarette business. Despite this accounting nuance, the essence remains clear – British American Tobacco’s U.S. cigarette business is in irrevocable decline.
Amidst this narrative, it’s no surprise why the stock price of this consumer staples titan has seen a notable decline. For risk-averse investors, approaching these shares cautiously would be prudent.
Exploring Bright Spots at British American Tobacco
Nevertheless, not all news surrounding British American Tobacco is gloomy, which might intrigue more daring investors. Similar to its competitors, the company has managed to implement price hikes to counterbalance volume reductions. This strategy has enabled British American Tobacco to sustain its dividend amidst an inhospitable industry landscape, a feat likely to persist for the foreseeable future.
Concurrently, the company has been actively seeking alternative tobacco and nicotine products to supplant its dwindling cigarette segment. Currently contributing around 16.5% to the top line, the objective is to elevate this figure to 50% by 2035, with encouraging initial progress in this frontier.
Noteworthy success emerged in 2023 when British American Tobacco’s “new categories” division turned profitable ahead of schedule, underscoring actual progress rather than mere wishful thinking.
For investors with a higher risk tolerance, enticed by the prospects of British American Tobacco transitioning away from cigarettes, the stock’s significant price drop and high dividend yield could present an attractive opportunity.
Timing the Purchase of British American Tobacco Stock
Choosing to invest in British American Tobacco does not entail a one-size-fits-all approach. Conservative investors may find the stock ill-suited, given the formidable headwinds within its core business segment. Conversely, for more aggressive investors, the advancements in the company’s new categories segment could serve as a compelling draw to delve into the stock. However, do so cognizant of the elevated risk and the enduring dominance of the declining cigarette business, necessitating vigilant monitoring post-investment.
Assessing the Viability of Investing in British American Tobacco
Before considering an investment in British American Tobacco, bear in mind:
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Reuben Gregg Brewer 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.
