This Ultra-High Dividend Stock Is Approaching an 8% Yield: Does That Make It a Buy Right Now?

Core Viewpoint - High dividend yields can indicate business weakness, which may lead to poor stock performance and potential dividend cuts in the future [1] Group 1: Company Overview - British American Tobacco (BTI) is facing sector challenges and business missteps, yet it generates strong cash flow and trades at a low earnings multiple [2] - The company has a diverse portfolio of cigarette brands, including Camel, Newport, and Lucky Strike, but is experiencing declining customer volumes [3] Group 2: Business Performance - Cigarette volumes have declined significantly, with a 9% year-over-year drop in combustibles volumes last year, particularly in the U.S. [4] - Despite price increases, combustibles revenue fell by 4% year-over-year in 2024, although it remained flat when adjusted for currency and the sale of the Russian business [4] - Management anticipates further challenges in 2025 due to new excise taxes in Bangladesh and Australia, indicating a long-term decline in the cigarette business [5] Group 3: Growth Potential - British American Tobacco is investing in new nicotine products, including nicotine pouches and heat-not-burn devices, expecting this segment to drive future growth [6] - In 2024, revenue from new categories grew by 8.9% year-over-year to 3.6 billion British Pounds (approximately $4.56 billion), but these products only accounted for 13$12.8 billion in operating cash flow and $10 billion in free cash flow, with$3.41 billion remaining after dividend payments [10] - The reduction in debt levels provides the company with the capacity to increase dividend payouts and repurchase stock in the coming years [10][11]