Yahoo Finance British American Tobacco (LON:BATS) Is Due To Pay A Dividend Of £0.5445
The board of British American Tobacco p.l.c. (LON:BATS) has announced that it will pay a dividend of £0.5445 per share on the 2nd of February. Based on this payment, the dividend yield on the company's stock will be 6.7%, which is an attractive boost to shareholder returns.
View our latest analysis for British American Tobacco
British American Tobacco's Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The last payment made up 92% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.
Looking forward, earnings per share is forecast to rise by 83.7% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 53% which would be quite comfortable going to take the dividend forward.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The dividend has gone from an annual total of £1.26 in 2012 to the most recent total annual payment of £2.18. This means that it has been growing its distributions at 5.6% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.
The Dividend's Growth Prospects Are Limited
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. British American Tobacco hasn't seen much change in its earnings per share over the last five years. Slow growth and a high payout ratio could mean that British American Tobacco has maxed out the amount that it has been able to pay to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about British American Tobacco's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 3 warning signs for British American Tobacco that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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