Are high-flying British American Tobacco (BATS) shares still good value on upbeat 2025 results?
British American Tobacco (LSE: BATS) shares have been providing cash rewards to shareholders for years. And that tradition continued Thursday (12 February) with a 2% rise in the full-year 2025 dividend to 245p, for a 5.5% yield. The company also launched a new £1.3bn share buyback programme for 2026. That should give an extra boost for future per-share measures like earnings and dividends.
Investors didn’t seem too excited by the results, with the share price barely moving in early morning trading. But it’s already surged over 60% in the past five years, lifting the valuation. So maybe the price is right in the circumstances.
What does the future hold for this long-term FTSE 100 dividend stock? Let’s take a look.
The ‘S’ word
The year brought a rise in adjusted profit from operations of 2.3%, from an 44% operating margin. And at the bottom line, adjusted earnings per share (EPS) came in 3.4% ahead of the previous year. Of particular interest to long-term investors, revenue growth from New Categories products “accelerated to double-digits in H2,” for a full-year rise of 7%.
CEO Tadeu Marroco said the performance “reinforces our confidence in sustainably delivering our mid-term algorithm from 2026.” He added he remains “committed to delivering sustainable shareholder value through robust cash returns,” also talking about “sustainable share buybacks” on top of the new £1.3bn plan.
The word ‘sustainable’ features prominently in this latest update. And it really is key for the chances of BATS shares remaining an attractive cash-generative proposition in the years and decades ahead.
Smoke gets in your eyes
Will British American Tobacco be selling as many cigarettes and other smoking products in 20 years’ time? I really don’t think so — and I doubt many other people do. Large parts of the developing world are still hooked on the habit, and that might keep the profits going for some time yet. But the world is clearly changing.
That’s why the focus on New Categories products is so important. And in 2025, we saw 4.7m new customers for the company’s smokeless brands. That means 34.1m of them now, apparently. But it’s still a relatively small proportion.
Smokeless products contributed 18.2% to total revenue in 2025, which is definitely encouraging. But it’s fairly slow progress, up a very modest 0.7 percentage points over the previous year.
Good-value shares?
The adjusted EPS figure of 352p gives BATS shares a trailing price-to-earnings (P/E) ratio of only 12.5 on the previous day’s close. But the seemingly low valuation is impacted by net debt of £30.4bn at the end of December 2025 (likely to be little changed by the end of 2026). That’s approximately 32% of British American Tobacco’s market cap.
Allowing for the debt pushes the effective P/E for the business up to 16.5. Is that good value for a stock with a 5.5% dividend yield? I’m positive on that score. But is there a safety margin to cover the risk from today’s changing market? I’m not so sure there.
I can see why income investors like this stock, and I’m convinced they’re right to consider it. But the medium-term profit uncertainty is one reason I’m looking elsewhere myself.
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Alan Oscroft 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.
