Here’s how many British American Tobacco shares it takes to earn a £1,000 monthly second income
Investors who bought British American Tobacco (LSE:BATS) shares five years ago have had a very nice second income. The firm has returned over 30% of its share price in cash since 2021.
On top of this, the share price is up almost 75%. So in an uncertain and volatile market, is this a stock for investors looking for safety and durability to consider buying?
Dividend growth
British American Tobacco has an incredibly impressive growth record. The firm has increased its dividend each year for over a quarter of a century and it isn’t showing signs of stopping.
With the company set to distribute just over £2.45 in dividends per share in 2026, investors need 4,898 shares to earn £12,000 a year â or £1,000 a month in passive income. At todayâs prices, thatâs an investment worth £222,690.
But while few are in a position to make that kind of a move in one go, that dividend growth means the number has fallen. Five years ago, the number would have been 5,565. And as long as the firm manages to keep the dividend increases coming, the number will keep coming down in future.
Can it continue?
A 5.38% dividend yield is well above the FTSE 100 average. But â as Tom Jones might say â itâs not unusual in the context of British Tobacco shares over the last five years.
In fact, 5.38% is the lowest the dividend yield has been since 2021. And that makes it seem like a bad time to consider buying the stock, but investors need to be wary of that thought.
Thereâs no way to go back in time and buy the stock in 2023 when it was trading with a yield above 10%. But the fact that it was cheaper back then doesnât mean it isn’t good value now.
Fixating on previous prices can lead investors to misjudge the opportunities in front of them. Itâs easy to do, but this is something the best investors work hard to avoid.
Where are we now?
In many ways, British American Tobacco hasnât changed much over the last five years. Its core product is addictive and harmful, but itâs cheap to produce and extremely profitable.
That means thereâs a constant threat of regulation for investors to consider. And the companyâs main defence against this is the launch of its new products, which include nicotine pouches. Those have proved popular, but the question is whether they can grow quickly enough to offset declines in cigarette volumes. I think though, that the demographic trends make this unlikely.
Cigarette revenues have been stable, but this has been due to price increases. And that canât go on forever, especially with an older customer base leading to non-linear volume declines.
Income opportunities
When I try to list companies least likely to be disrupted by artificial intelligence (AI), British American Tobacco’s pretty near the top. And thatâs why the stock’s doing well.
Ultimately though, I donât see that as enough to justify a long-term investment. Even for investors looking for a reliable second income, I think there are far better stocks to consider.
The post Here’s how many British American Tobacco shares it takes to earn a £1,000 monthly second income appeared first on The Motley Fool UK.
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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended British American Tobacco P.l.c. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
