Investing in dividend shares can be a great way to earn money due to the regular passive income streams they provide.
When share prices fall, yields often rise. For long-term investors like me, buying downtrodden stocks can be profitable provided they eventually recover and shareholder distributions are maintained.
In that context, it’s notable that British American Tobacco (LSE:BATS) and Ferrexpo (LSE:FXPO) both trade near one-year lows. So, could buying these stocks provide me with future riches? Let’s explore.
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?
British American Tobacco
The FTSE 100 tobacco giant already features in my portfolio. However, the share price has plummeted over 10% in 2023 and my position’s in the red. This could be a good opportunity to buy more and bring my average cost per share down.
Currently, the stock’s dividend yield is 7.68%. That’s considerably above the Footsie average. But the absence of a new share buyback programme this year, contrary to analysts’ expectations, dealt a severe blow to the share price.
Part of the rationale behind this caution was a desire to set aside funds for “litigation uncertainties”. Perhaps the firm’s leadership anticipated a recent adverse ruling regarding US sanctions violations from historic tobacco sales to North Korea. The case culminated in a $635m settlement.
That said, there are reasons to be bullish despite these headwinds. Although the tobacco industry’s golden era is probably in the rear-view mirror, the company’s diversifying away from combustibles. Alternative nicotine products now constitute nearly a fifth of the firm’s revenue.
Plus, the business has a price-to-earnings ratio of just 10.3, falling net debt, and robust free cash flow. These are markers of a blue-chip stock that’s good value. If I had spare cash, I’d buy more shares today.
Ferrexpo
FTSE 250 iron ore miner Ferrexpo has historically rewarded shareholders with huge dividends. However, payouts have effectively been cancelled until further notice due to the devastating effects of the Russia-Ukraine war.
As Ferrexpo’s operating base is located in central Ukraine, the ongoing conflict is the dominant factor affecting the company’s performance.
But it’s not all grim news. The business more than doubled total iron ore pellet production to 900,000 tonnes during the last quarter. What’s more, the firm anticipates it’ll be able to operate two of its four pelletiser lines despite persistent power and logistics issues.
Ferrexpo could play a crucial role in Ukraine’s future rebuilding. That strengthens the bull case for a company that has suffered enormously over the past year.
However, there’s considerable uncertainty around the war’s outcome. It’s difficult to conduct an orthodox analysis of business fundamentals when future share price action is likely to be determined by developments on the battlefield.
An opportunity to get rich?
I’m avoiding Ferrexpo shares. Brave investors could make a significant profit if a recovery materialises, but I’m wary that substantial losses are a real possibility.
I prefer the risk/reward profile of British American Tobacco shares, but I don’t see them as tickets to get rich. This is a mature business in a sunset industry. Accordingly, I’m not convinced it’s a high-growth opportunity.
However, there’s an important place in my portfolio for defensive, inflation-resistant dividend stocks with impressive track records of delivering passive income. That’s exactly where my British American Tobacco shares fit in.
