Is British American Tobacco p.l.c. (BTI) the Best Dividend Stock Under $50?

British American Tobacco p.l.c. (BTI) has long been a favorite among income-oriented investors, thanks to its generous dividend payouts. But is BTI the best dividend stock to buy under $50? Let's delve into the data and analyze the company's dividend performance, yield, and sustainability to help you make an informed decision.

BTI's dividend yield of 8.20% is significantly higher than the average yield of 1.7% for the S&P 500 and the 3.2% average for its tobacco peers. This high yield suggests that BTI is a strong contender for dividend investors. However, it's essential to consider the payout ratio, which measures the proportion of earnings paid out as dividends. BTI's payout ratio is 75.7%, higher than its peer average of 65.4% and above its historical average of 68.5%. While a high payout ratio indicates a generous dividend, it also suggests that BTI may be distributing a significant portion of its earnings, potentially limiting reinvestment opportunities for future growth.

BTI's dividend growth rate has been impacted by declining cigarette consumption and regulatory pressures. Despite a 3.5% drop in cigarette volumes in 2020, BTI maintained its dividend, reflecting its strong cash flow generation. However, regulatory pressures, such as plain packaging and higher taxes, have led to a slowdown in dividend growth. BTI's dividend yield is currently 8.20%, but its growth rate has decelerated, with a 5-year CAGR of 4.5% compared to 10.5% in the previous decade.



BTI's dividend payout ratio and earnings growth rate are key factors in assessing its dividend sustainability. As of 2024, BTI has an annual dividend of $2.97 per share, with a yield of 8.20%. The dividend is paid every three months, indicating a consistent payout schedule. However, BTI's earnings growth rate has been volatile, with a 5-year average of 1.9%. This relatively low growth rate, coupled with a payout ratio of 8.20%, suggests that BTI's dividend is sustainable but may not offer significant growth in the near future.

BTI's dividend yield compares favorably to its peers and the industry average. At 8.20%, BTI's yield is significantly higher than the average yield of its peers (3.2x) and the global tobacco industry average (2.1x). This suggests that BTI offers a more attractive income stream compared to its competitors and the broader industry.

In conclusion, BTI's high dividend yield and consistent payout schedule make it an attractive option for income-oriented investors. However, its high payout ratio and decelerating dividend growth rate may raise concerns about the company's ability to maintain and increase dividends in the long run. While BTI is a strong contender for the best dividend stock under $50, investors should carefully consider the company's fundamentals and the broader market trends before making a decision.