Because the saying goes, the place there’s smoke, there’s fireplace. However within the case of British American Tobacco (NYSE: BTI), the place there’s smoke, there’s an enormous 10% dividend yield.
Can the corporate maintain it, or will it burn by means of its money just like the embers on the top of a forgotten cigarette?
In 2023, British American Tobacco posted its largest free money stream determine in at the least a decade.
The corporate generated $10.8 billion in free money stream final yr and paid out $6.3 billion in dividends for a payout ratio of 58%.
This yr, free money stream is forecast to say no to $10.3 billion, and the overall dividend payout is projected to stay $6.3 billion. That might push the payout ratio as much as 61%, which remains to be nicely inside my consolation zone. For many firms, I prefer to see payout ratios of 75% or decrease as a result of that ensures they’ll nonetheless have the ability to afford their dividends even when free money stream slips.
British American Tobacco has boosted its dividend yearly since 2007, which is a superb signal for its dividend security score.
Attributable to fluctuations within the alternate fee between the British pound and the U.S. greenback, buyers within the firm’s American depositary receipts (ADRs) could have sometimes seen small reductions of their dividends. However the firm didn’t cut back the payout, which is the essential issue once we’re wanting on the security of the dividend.
The ADRs pay a quarterly dividend of about $0.74 per share, which comes out to a ten.4% yield at present costs.
So now we have an organization that boasts a stable monitor file of paying and elevating its dividend and has loads of free money stream to proceed to pay shareholders a double-digit yield.
Whereas tobacco is just not wholesome, you’ll be able to’t say the identical about British American Tobacco’s dividend.
Dividend Security Score: A
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