British American Tobacco: Saving Your 2022 Returns

British American Tobacco: Saving Your 2022 Returns


Chaos and uncertainty rule the markets as investors flee popular growth stocks in pursuit of safer heavens.

“Sin stocks” regain popularity due to mounting losses which cause ethics and morals to take a back seat again.

British American Tobacco is an undervalued free cash flow machine and a dividend powerhouse that offers a stable and secure 7.2% dividend yield.

The company is positioned brilliantly to weather the ongoing storm and offer a safe harbor for investors looking to regain some control over 2022.

AscentXmedia/E+ via Getty Images Broader markets have been on a downturn for the better part of the last two quarters. The Russian invasion of Ukraine has only served to further frighten investors who were already deeply concerned over rising inflation and the upcoming rate hikes. Many investors are pulling their money out of stocks and moving into safer havens, including bonds, gold, silver, or simply the U.S. dollar.

As we witness many popular stocks probing their 52-week lows, “sin stocks” are living through a second youth. Outperforming the market while generating great results, British American Tobacco ( BTI ) has proven particularly resistant to both warmongering and inflation fears. The British-American dividend powerhouse is a free cash flow machine that is offering a 7.2% dividend yield to anyone willing to forgo the ethics and hedge themselves against the troublesome times that are awaiting us. A safe harbor investment?

In general, sin stocks are defined as public companies that are involved in controversial sectors such as alcohol, tobacco, gambling, or defense. In other words, they are industries that are often described by ethically oriented investors as immoral, unethical, or in other ways not meeting the standards of modern investing. Among them, Big Tobacco is often considered to be the worst and could be described as the “poster boy” for sin stocks.

However, it was proven time and time again that when uncertainty looms in the markets, both ethics and morals often take a back seat. As a result, oil stocks, tobacco stocks, and defense and aerospace stocks have become attractive again seemingly overnight. The investing world has been faced with two major crises over the period of the last six months that have thrown markets into turmoil.

First, it turned out that inflation is no longer “only transitory” and that investors have to brace for several upcoming rate hikes. In fact, the last year has seen the worst consumer price rises in the last 40 years. Secondly, Russia has invaded Ukraine on the 24th of February, marking the beginning of the largest conflict in Europe since the 2nd World War. In response to the invasion, the United States and the European Union have issued unprecedented and never-before-seen sanctions targeting the Russian economy. The sanctions have seen wrecked supply chains and billions in equities simply erased from the markets. Data by YCharts As a result of the ongoing chaos, the market is down by more than 12% year to date. However, one investment does seem to offer itself as a safe harbor to endure the crisis and save the investment year. British American Tobacco has already proven itself quite resilient to the market downturn. The nature of the cash flow-oriented, moat deep, high margin, and low debt business sees investor returns almost guaranteed with attractive dividends and strong share buy-back programs. A fortress balance sheet

Let us take a look at the fortress balance sheet portfolio and find out what makes British American Tobacco so fundamentally attractive. The first and obvious thing we realize is the depth of the moat the business commands. BAT is a British multinational company that was established in London all the way back in 1902. Throughout its long history, the company has acquired cigarette brands such as Dunhill, Kent, Lucky Strike, Pall Mall, Rothmans, and many others. Its brands also include tobacco alternatives such as Vuse, Glo, and Velo. BAT Brands (Investor Relations) As of 2020, it is the world’s biggest manufacturer and seller of tobacco and alternative tobacco products based on net sales. In terms of market cap, it remains the 3rd largest tobacco company in the world. The tobacco giant carries some of the strongest and most recognizable brands in the industry, currently owning 6 out of the 10 most valuable tobacco brands in 2021. BAT is effectively only lacking the ownership of the “Marlboro” brand in order to become the undisputed tobacco company in terms of brand recognition. Tobacco Brands Value (Statista – Koen van Gelder) Tobacco brands have been carefully built […]

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