When it comes to finding high-yield dividend stocks, these numbers from my top holding, British American Tobacco (LSE: BATS), are impressive:
- A forward-looking dividend yield for 2024 of just under 9.5%
- A multi-year compound annual growth rate for the dividend running at around 17%
- Strong backing from operating cashflow compounding at about 11%
- A business with an operating margin of almost 40%
- A low forward-looking earnings multiple of just 6.7 for 2024
Those figures were broadly correct on 26 July when the share price was around 2,658p.
What’s more, this isn’t some obscure little company that many have never heard of. It’s a stalwart of the UK’s lead index, the FTSE 100.
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Defensive and stable
So I’d throw into the mix ‘mature and potentially stable business’ as one of its attractions.
But on top of that, the enterprise also operates in a defensive sector. And that means general economic downturns don’t tend to affect it much.
It’s a fast-moving consumer goods business. And they can be among the best and most-secure dividend-payers on the market.
A wonder stock? Maybe. But there are risks to consider as well.
For example, the company has loaded up its borrowings over the years on the back of its stable and steady trading. Now, the debt-load looks quite high. And that could be a problem if anything happens to upset its trading markets.
And the business operates in a sub-sector that attracts intense regulatory scrutiny. Lawmakers have the power to make life very difficult for BATS if they so choose.
Another risk is that the trend for ethical investing has caused several institutional investors to shun this stock. But in terms of the financial opportunity now, that’s a double-edged sword.
On the one hand it may be part of the reason for the company’s low valuation. But on the other, the stock could move even lower if the big boys keep selling.
Solid results and an excited chief
Nevertheless, there’s still the need for investors to square ethical concerns with their own morals. And my view is there are several ways to invest while doing good in society, and the enterprise will carry on with or without me aboard anyway. However, investors will likely differ in their approaches.
On 26 July, the firm posted a solid set of half-year results covering the period to 30 June. And the new chief executive, Tadeu Marroco, said there’s a renewed sense of energy across the organisation.
The business is close to breakeven from sales in its new categories division after revenues jumped by 29%. And the big hope is that these less-harmful offerings will take over from traditional smoking products.
Marroco acknowledged that there’s much to do, but added: “I’m excited by BAT’s future.”
For the time being, the company and the stock look like they’re here to stay. And I see the business as worth investors’ further research and consideration now.
