July 20, 2024

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1 Spectacular Dividend Stock Yielding Close to 10% to Buy for the Second Half of 2024

2 min read

The market has soared since the beginning of 2023. The S&P 500 index has posted a total return level of 48% over that time frame, pushing the index’s price-to-earnings (P/E) ratio of nearly 29.

This is much higher than the long-term market average, with many popular stocks such as Apple, Nvidia, and Microsoft trading at even higher multiples. High earnings ratios likely mean high risks for strong forward returns. You need to be optimistic in order to believe the returns over the next 10 years will look like the last 10 for the S&P 500.

So, what are investors to do with so many stocks looking expensive? I have one dividend stock that looks wildly attractive compared to the market: British American Tobacco (NYSE: BTI). The company has a dividend yielding close to 10% and a dirt-cheap earnings ratio. Unlike most stocks, the market is extremely pessimistic about the company’s prospects right now.

Here’s why you should buy British American Tobacco stock for the second half of 2024.

Declining unit volumes, consistent price hikes

Investors have soured on tobacco companies due to accelerated volume declines for traditional cigarettes. British American Tobacco saw an 8% decrease in sales volume for cigarettes around the world in 2023.

While numbers like this are concerning, investors should remember that tobacco companies are dealing with fallout from conflicts around the world, which is making the volume numbers worse. On an organic basis, British American Tobacco saw a 5.3% volume decline around the world.

The company is able to counteract volume declines with consistent price hikes on cigarettes. This is why revenue from combustible products only declined 4% in 2023 and a measly 0.8% when excluding currency movements, which the company cannot control.

When taking in the whole picture, it is clear that British American Tobacco’s cigarette business is doing fine despite heavy volume declines. While it’s not a hypergrowth business, its price hikes have led to stable consolidated…

2024-07-10 07:13:00

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