Around £41 a share, this FTSE 100 passive income star now has a forecast dividend yield of 7%!

British American Tobacco (LSE: BATS) strikes me as one of the FTSE 100âs most compelling passiveâincome opportunities right now, albeit one that some will not like on ethical grounds.

The shares already yield a chunky 5.8%, with analysts pointing to steady increases over the coming years. This is all underpinned by consistent dividend growth stretching back years.

So, what sort of returns are we looking at here?

Consistent dividend powerhouse

Over the past five years, British American Tobacco has lifted its payout every year, from 210.4p in 2020 to 235.5p in 2024. Across that period, the average annual dividend yield has hovered between 6% and 10%, depending on the share price. This is a consistently high level of dividend yields that few FTSE 100 companies can match.

Looking ahead, analysts expect the company to keep raising its dividend. A risk here is that the high level of competition in the sector may reduce its margins, so squeezing profits.

However, projections point to payouts of 250.4p this year, 258.7p in 2027, and 286.3p in 2028. These would translate into respective annual yields of 6.1%, 6.3%, and 7%.

I like to see my passiveâincome stocks yielding 7% or more — comfortably higher than the âriskâfree rateâ (the 10âyear UK gilt). Effectively, I am being compensated for taking the additional risk in share investment over no risk at all.

How much could I make?

My Â£20,000 holding in the firm would make me Â£20,193 in dividends after 10 years on the forecast 7% yield.

Dividend yields can go down as well as up, of course, based on annual payouts and the share price. This figure also assumes that I reinvest the dividends back into the stock — illustrating the power of âdividend compoundingâ.

But on the same basis, the payouts could rise to Â£142,330 over 30 years. Including my original Â£20,000 investment, the holding could be worth Â£162,330 by then.

And at that point, it could be paying me Â£11,363 a year in passive income from dividends.

Do recent results look dividend-supportive?

British American Tobaccoâs preliminary 2025 numbers look supportive of ongoing dividend rises, in my view.

Management expects around 2% revenue and adjusted profit growth for the year, with New Category products accelerating to doubleâdigit growth in H2. These products are principally nicotine substitutes, with its objective remaining to be a predominantly smokeless business by 2035.

The group also reaffirmed its midâterm year-on-year growth targets of 3%â5% for revenue and 4%â6% for adjusted profit.

Crucially from the dividend perspective, the company said cash generation remains strong. And a fresh Â£1.3bn buyback underlines the strength of the balance sheet. These also tend to support share price gains.

My investment view

Overall, British American Tobacco still looks to me like a robust longâterm income play to consider.

The dividend track record is strong, the payout is rising, and the latest trading update suggests the business can comfortably support further increases.

With solid cash generation, disciplined leverage and ongoing buybacks, I think the shares offer dependable passiveâincome potential for patient investors.

I am very happy to keep my holding as is and am also looking at other high-yield stocks for my retirement income.

The post Around Â£41 a share, this FTSE 100 passive income star now has a forecast dividend yield of 7%! appeared first on The Motley Fool UK.

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Simon Watkins has positions in British American Tobacco P.l.c. 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.