U.S. Markets closed
  • S&P 500

    3,640.47
    -78.57 (-2.11%)
     
  • Dow 30

    29,225.61
    -458.13 (-1.54%)
     
  • Nasdaq

    10,737.51
    -314.13 (-2.84%)
     
  • Russell 2000

    1,674.93
    -40.31 (-2.35%)
     
  • Crude Oil

    81.61
    -0.54 (-0.66%)
     
  • Gold

    1,668.80
    -1.20 (-0.07%)
     
  • Silver

    18.80
    -0.08 (-0.45%)
     
  • EUR/USD

    0.9825
    +0.0086 (+0.8843%)
     
  • 10-Yr Bond

    3.7470
    +0.0420 (+1.13%)
     
  • Vix

    31.84
    +1.66 (+5.50%)
     
  • GBP/USD

    1.1120
    +0.0234 (+2.1505%)
     
  • USD/JPY

    144.4500
    +0.3280 (+0.2276%)
     
  • BTC-USD

    19,484.70
    -66.28 (-0.34%)
     
  • CMC Crypto 200

    444.40
    -1.58 (-0.35%)
     
  • FTSE 100

    6,881.59
    -123.80 (-1.77%)
     
  • Nikkei 225

    26,422.05
    +248.07 (+0.95%)
     

British American Tobacco (LON:BATS) Will Pay A Dividend Of £0.5445

·3 min read

The board of British American Tobacco p.l.c. (LON:BATS) has announced that it will pay a dividend on the 10th of November, with investors receiving £0.5445 per share. This means the dividend yield will be fairly typical at 6.3%.

View our latest analysis for British American Tobacco

British American Tobacco's Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before this announcement, British American Tobacco was paying out 92% of earnings, but a comparatively small 49% of free cash flows. This leaves plenty of cash for reinvestment into the business.

Over the next year, EPS is forecast to expand by 80.7%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 54% which brings it into quite a comfortable range.

historic-dividend
historic-dividend

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the annual payment back then was £1.26, compared to the most recent full-year payment of £2.18. This means that it has been growing its distributions at 5.6% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Unfortunately, British American Tobacco's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

Our Thoughts On British American Tobacco's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for British American Tobacco that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here