4 Stunning Dividend Stocks: British American Tobacco plc, J Sainsbury plc, Imperial Tobacco Group PLC And Debenhams Plc

These 4 stocks have huge income potential: British American Tobacco plc (LON: BATS), J Sainsbury plc (LON: SBRY), Imperial Tobacco Group PLC (LON: IMT) and Debenhams Plc (LON: DEB)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With inflation falling to minus 0.1%, the prospect of a brisk rise in interest rates seems to be fading. That’s because the global economy continues to experience a deflationary period and, if rates move upwards too quickly, it could cause deflation to spiral and the knock-on effect may be reduced GDP growth or even a recession.

As a result, dividends are likely to be hugely important to many investors in the coming years and, with the FTSE 100 yielding almost 4%, there are a number of top notch income plays on offer at highly enticing prices.

For example, tobacco stocks such as British American Tobacco (LSE: BATS) and Imperial Tobacco (LSE: IMT) offer yields of 4.3% and 4.5% respectively. While impressive figures, the most appealing reason to buy shares in both companies is their dividend sustainability, with them having very stable businesses which are likely to grow profitability in the mid to high-single digits over the medium term and pass much of that earnings growth on to investors in the form of higher dividends.

Should you invest £1,000 in British American Tobacco right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if British American Tobacco made the list?

See the 6 stocks

Certainly, the tobacco industry is changing and the advent of e-cigarettes has the potential to shake up the established order. The reality, though, is that the likes of British American Tobacco and Imperial Tobacco already have exposure to that market and, with them having such strong cash flow and being so financially sound, they could easily conduct M&A activity so as to dominate the e-cigarette space as they do in the tobacco market.

And, while they trade on premium price to earnings (P/E) ratios of 17.2 (British American Tobacco) and 14.8 (Imperial), there is still room for upward reratings when their valuations are compared to other global consumer stocks – many of which have P/E ratios in excess of 20.

Meanwhile, retailers such as Sainsbury’s (LSE: SBRY) and Debenhams (LSE: DEB) also have huge dividend appeal, although they are far less stable prospects than their tobacco peers. That’s at least partly because they are subject to much greater competition, with the likes of no-frills supermarkets such as Aldi and Lidl eating away at Sainsbury’s market share, while lower cost options have also caused a reduction in profitability at Debenhams in recent years, too.

Still, both companies yield 4% and, looking ahead, dividends could grow at a brisk pace. That’s because the UK economy continues to improve, with unemployment recently reaching an all-time low. And, with inflation being at or near-zero, consumers are enjoying rising disposable incomes in real-terms for the first time since the start of the credit crunch.

Clearly, both Sainsbury’s and Debenhams are enduring a relatively challenging period. But, with dividends being covered twice and 2.3 times respectively by profit, their sustainability as income stocks appears to be relatively high. And, with P/E ratios of just 12.5 and 10.9 respectively, there is clear upward rerating potential, too.

Investing in AI: 3 Stocks with Huge Potential!

🤖 Are you fascinated by the potential of AI? 🤖

Imagine investing in cutting-edge technology just once, then watching as it evolves and grows, transforming industries and potentially even yielding substantial returns.

If the idea of being part of the AI revolution excites you, along with the prospect of significant potential gains on your initial investment…

Then you won't want to miss this special report inside Motley Fool Share Advisor – 'AI Front Runners: 3 Surprising Stocks Riding The AI Wave’!

And today, we're giving you exclusive access to ONE of these top AI stock picks, absolutely free!

Get your free AI stock pick

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of British American Tobacco, Debenhams, Imperial Tobacco Group, and Sainsbury (J). The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

10% dividend yield! Here’s a FTSE 100 share to consider in April for passive income

This FTSE 100 stock just soared past the 10% yield mark, making it a potentially lucrative option for investors targeting…

Read more »

Young black woman using a mobile phone in a transport facility
Investing Articles

3 FTSE 100 safe haven stocks to consider as trade wars bite

I'm confident in the long-term outlook for the FTSE index of stocks. But these blue chips may protect investors from…

Read more »

Investing Articles

Here’s how Trump tariffs could hand us some top passive income bargains

As tariff terror grips the stock market, it's time for passive income investors to steel our nerves and look for…

Read more »

Investing Articles

These FTSE shares may offer some safety as Trump slaps tariffs on trading partners

FTSE shares moved lower on 3 April, after US President Donald Trump introduced hefty tariffs on its trading partners. These…

Read more »

Investing Articles

6.8% dividend yield! Consider these 2 ‘secret’ passive income stocks to target a £1,360 payday in 2025

Looking for ways to generate above-average dividend income? These lesser-bought income stocks are worth a close look.

Read more »

Elevated view over city of London skyline
Investing Articles

The M&G dividend yields over 10% — and could get higher!

Christopher Ruane explains why he's upbeat about the long-term outlook for the M&G dividend yield and would happily buy the…

Read more »

Young Caucasian man making doubtful face at camera
Investing Articles

2 popular UK growth stocks I wouldn’t touch with a bargepole in today’s market

Buying growth stocks can deliver market-beating returns, but this FTSE 250 pair doesn't look like a convincing investment for our…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

10 FTSE shares falling today after President Trump’s tariffs bombshell!

Our writer explains why JD Sports Fashion from the FTSE 100 and a diverse bunch of other UK stocks are…

Read more »