High-Yield Dividend Stocks Overview - High-yield dividend stocks can outperform the S&P 500 over multidecade periods when dividends are reinvested, but often struggle to match market returns in the short term due to high yields signaling potential company decline [1] British American Tobacco (BAT) Performance - BAT offers an 8.2% dividend yield but has significantly underperformed both the broader market and its tobacco industry peers over the past 10 years [2] - The company's high yield raises questions about whether it represents an overlooked opportunity or masks deeper issues [3] BAT's Business Model - BAT is the world's second-largest tobacco company by volume, with traditional cigarettes generating over 80% of revenue in recent years [4][5] - The company holds a strong position in the U S tobacco market, owning several leading brands and commanding roughly one-third market share [5] Next-Generation Products - BAT's Glo heated tobacco product has achieved modest success but trails Philip Morris International's iQOS platform [7] - The Velo modern oral brand is losing market share despite strong segment growth, while the Vuse vaping brand has found significant success in a maturing global vaping market [8] Financial Health and Outlook - BAT's dividend yield appears sustainable with a payout ratio near 60%, and the stock trades at under 8x forward earnings, a significant discount to the S&P 500's multiple above 23 [9] - Wall Street expects low-single-digit organic revenue growth this year, driven by pricing power in traditional tobacco and gradual gains in next-generation products [10] Investment Merits and Risks - BAT's strengths include its dominant U S tobacco market position, strong pricing power, and geographic diversity across 180 countries [11] - Challenges include weak performance in heated tobacco products, stagnation in the global vaping market, and significant currency exposure due to dollar-denominated debt [12] Investment Verdict - BAT stock presents a value-trap dilemma, with its high yield and low valuation potentially masking struggles in next-generation products and a declining core business [13] - The investment case hinges on BAT's ability to leverage its U S market position and pricing power to fund a successful transition to alternative products, but more compelling opportunities exist for income-focused investors [14]

Dividend Comparison - British American Tobacco offers a higher dividend yield of 8.4% compared to Kraft Heinz's 5.5% [2] - British American Tobacco has a consistent track record of increasing its quarterly dividend since 2018, while Kraft Heinz cut its dividend in 2019 and has not increased it since [3] - For investors focused solely on dividends, British American Tobacco is the clear choice [4] Business Challenges - Both companies face significant business challenges, which contribute to their high dividend yields [5] - Kraft Heinz is struggling with its brand-focused strategy, as the brands it prioritizes are underperforming compared to non-prioritized brands [7] - British American Tobacco is experiencing a long-term decline in cigarette volumes, with production dropping from 700 billion in 2018 to 555 billion in 2023 [9] - British American Tobacco has been offsetting volume declines with price increases, but this strategy may not be sustainable in the long term [10] - The company has changed its accounting treatment for U S cigarette brands, suggesting it expects them to become worthless in about 30 years [11] Investment Outlook - Kraft Heinz appears to have a better long-term outlook due to the essential nature of its food products and its strong brand portfolio [14] - British American Tobacco faces deeper structural issues, as its core product category is in decline and its future is uncertain [9][11] - While neither company is performing well from a business perspective, Kraft Heinz seems more likely to recover compared to British American Tobacco [13][14]

Investment Focus - The individual primarily invests in stocks and ETFs, with a preference for US companies but also analyzes European and Chinese companies [1] - Investments are long-term and often take a contrarian approach [1] Sector Interest - The banking sector is of particular interest as it is considered fundamental to understanding the health of an economy [1] - Macroeconomics is also a key area of interest [1] Analytical Approach - Fundamental analysis is the preferred method, focusing on evaluating the actual results achieved by a company rather than technical analysis involving charts and price movements [1]

Industry Overview - Despite declining cigarette usage, the tobacco industry remains strong in 2025, with consumers shifting to emerging products like oral nicotine pouches and electronic devices [1] Company Performance - British American Tobacco (BAT) has shown resilience by focusing on innovation and high-growth categories, with the stock returning 31% over the past year [2] - BAT operates in over 150 countries and is known for iconic cigarette brands like Dunhill, Lucky Strike, Newport, and Camel [3] - The company is progressing toward becoming a predominantly smokeless business by 2035, with 18% of revenue from new categories in H1 2024, up from 6% in 2017 [4] - BAT's Vuse brand is the global market leader in rechargeable vaporizers, while glo holds the No 2 position in heated products [4] - Velo nicotine pouches are a major growth driver and market leader outside the US [4] - In H1 2024, BAT achieved 7 4% organic constant currency revenue growth from new categories, offsetting a 2 6% decline in traditional cigarettes [5] - Adjusted EPS increased 1 3% YoY, with climbing operating margins [5] - BAT expects low-single-digit organic revenue and adjusted profit growth in constant currency terms for full-year 2024 [5] - Management anticipates progressive improvement into 2025 and mid-single-digit profitable growth by 2026 and beyond [6] Valuation - BAT shares trade at a forward P/E ratio of 7x 2025 consensus EPS, significantly below peers Altria (10x) and Philip Morris International (17x) [7] - The discounted valuation may be due to BAT's global profile and reliance on emerging markets, contrasting with Altria's US focus and Philip Morris' success with Zyn in the US [8] - BAT's diversified global footprint is a strategic advantage, providing flexibility to adapt to evolving regulations and consumer preferences [9] Dividend - BAT offers an industry-leading 8 2% dividend yield, supported by significant free-cash-flow generation [10] - The company has a 25-year track record of consecutive dividend increases, with management committed to continued dividend growth [10] Outlook - 2025 is expected to be a significant year for BAT as it builds momentum with its smokeless product lineup [11] - The company is well-positioned to deliver positive returns over the next several years and is a good option for diversified portfolios [11]

Investment Group Overview - Sensor Unlimited leads the investing group Envision Early Retirement, offering solutions for high income and growth with isolated risks through dynamic asset allocation [2] - The group provides two model portfolios: one for short-term survival/withdrawal and another for aggressive long-term growth [2] - Features include direct access via chat for idea discussions, monthly updates on holdings, tax discussions, and ticker critiques by request [2] Analyst Background - Sensor Unlimited is an economist with a PhD in financial economics and a quantitative modeler [3] - Over the past decade, the analyst has covered the mortgage market, commercial market, and banking industry [3] - The analyst writes about asset allocation and ETFs, particularly those related to the overall market, bonds, banking, financial sectors, and housing markets [3] Trial Offer - A 100% risk-free trial is available to test the proven method without incurring costly market lessons [1]

Core Viewpoint - British American Tobacco offers a high dividend yield of 8.2%, but the company faces significant risks due to declining cigarette volumes and the need to adapt its business model [1][5]. Business Performance - Cigarette volumes have been consistently declining, with a 6.8% drop in the first half of 2024 compared to the same period in 2023, following a 5.3% decline in 2023 and a 5.1% decline in 2022 [3][4]. - The combustibles division, which includes cigarettes, constitutes approximately 80% of the company's revenues, with cigarettes making up nearly 98% of the volume within that division [6]. Future Outlook - By the end of 2024, British American Tobacco's brands will have an estimated 29 years of "value" left, decreasing to 28 years by the end of 2025, indicating a continuous decline in brand longevity [4]. - The company is attempting to diversify its business, with new ventures accounting for around 20% of total revenue, but these efforts are not yet sufficient to counterbalance the declines in the cigarette business [4]. Financial Implications - If the current decline continues, cigarette sales could drop from approximately 555 billion in 2023 to around 517 billion in 2024, and potentially to 482 billion in 2025, assuming the rate of decline remains constant [7]. - Price increases have temporarily offset volume declines, but there is a limit to how much prices can be raised before further exacerbating the volume drop [8].

Group 1 - British American Tobacco (NYSE: BTI) is a leading tobacco company with significant momentum in alternative tobacco products [3] - The company's Vuse vapor brand is experiencing very favorable key performance indicators (KPIs) [3] - British American Tobacco is increasing its shareholder distributions [3]

Core Insights - The individual has a strong interest in financial markets, particularly in fundamental analysis, which evaluates actual company performance rather than stock price movements [1] - The focus is primarily on long-term investments in stocks and ETFs, with a preference for US companies, while also analyzing European and Chinese firms [1] - The banking sector is highlighted as a key area of interest, as it is essential for understanding economic health [1] Investment Approach - The investment strategy is characterized by a contrarian view, indicating a willingness to go against prevailing market trends [1] - The individual emphasizes the importance of macroeconomics in investment decisions, suggesting a holistic approach to market analysis [1]

Core Viewpoint - British American Tobacco (BAT) has experienced a 7% decline in share price in the month prior to the article, indicating potential challenges in its market performance [1]. Company Analysis - The article highlights the recent struggles of BAT's share price, suggesting that the pullback may present a buying opportunity for investors [1]. - The author, Manika, has over 20 years of experience in investment management and focuses on opportunities in the green economy, which may influence the future direction of BAT's strategies [1]. Industry Context - The green economy is identified as a generational opportunity, which could impact traditional sectors like tobacco, as companies may need to adapt to changing consumer preferences and regulatory environments [1].

Group 1 - Traditional combustible cigarettes remain the primary source of sales for British American Tobacco (BAT), and this trend is expected to continue in the near future [2] - BAT is expanding its portfolio of alternative nicotine products, which is attracting a growing consumer base globally [2] - Although BAT lost the first-mover advantage in heated tobacco to Philip Morris International (PMI), it leads in e-vapour products and ranks second in smokeless tobacco and nicotine pouches [2] Group 2 - The company profile of British American Tobacco in the Tobacco industry provides a comprehensive strategic analysis, including performance metrics, regional and sector shares, product developments, and market strategies [3] - The report covers various product categories such as cigarettes, cigars, smokeless tobacco, e-vapour products, and heated tobacco [4] - Data included in the report encompasses market sizes (historical and forecasts), company shares, brand shares, and distribution data [5] Group 3 - The report aims to provide insights into growth sectors, competitive positioning, and factors driving change within the tobacco market [7] - Key topics covered in the report include the current state of the market, exposure to future growth, competitive positioning, and key findings [7]