The company has consistently hiked its dividend for an impressive 27 consecutive years, a testament to its relentless reliability. The magnetism lies not solely in the high yield but also in the sustainability of BTI’s 9.7% yield. The stock’s yield will be too attractive to ignore relative to, say, bonds, which is likely to result in investors chasing the yield, driving the stock higher. With British American Tobacco yielding 9.7% at its current levels, it’s almost certain that investors will have to rethink its investment case. However, as soon as interest rates start falling, equities presenting robust yields are poised to deliver a more favorable risk/reward dynamic. While offering a risk-free 4.5%-5% return on cash, it makes prudent sense to opt for government-backed fixed-income securities from a risk/reward standpoint. To begin with, as interest rates decline, investors actively seek alternative high-yield opportunities. I believe that rate cuts are likely to reverse the current sentiment on the stock for several reasons.

This will be the first time the Fed has cut rates since the QE that took place in the early days of the COVID-19 pandemic.

The market expects that the Fed will cut rates three times this year.

Market” May Reprice the Stockĭespite the persistent downward trajectory of BTI stock, suggesting a lack of immediate reversal catalysts, I am optimistic that investors may reassess the stock’s value, especially in light of potential rate cuts. Add to these challenges the fact that interest rates have been elevated in recent months, meaning investors now require a higher rate of return from a stock, and you can see why BTI stock has suffocated in recent months (and years). Yet, the landscape there is fiercely competitive, intensifying the challenges within BTI’s investment scenario. The “news” here, however, is that regulators have recently shown a higher determination to combat big tobacco.Īs combustibles face growing scrutiny, the big players in the industry must swiftly pivot towards heated tobacco and oral products, among other alternatives. The aversion of investors to tobacco stocks due to their anti-ESG characteristics has been an enduring reality. In my view, the market attributes this stress to various factors, including the overall unattractiveness of tobacco stocks to investors, heightened competition in non-combustibles, and escalating regulatory constraints. Nonetheless, there is a rationale behind this pressure. This is especially true given that the company has continued to post growing revenues and profits. It is quite bizarre to see BTI stock undergo such a steep valuation compression in recent years, which has carried its forward P/E from the mid-teens to the mid-single digits. In particular, the stock reached 6.2x forward earnings (now 6.5x), its cheapest ever. BTI Stock Reached a Record-Low ValuationīTI stock has been hammered in recent months, which pushed its valuation to a record low (before bouncing back slightly in recent sessions). The stock’s continuous decline has pushed its dividend yield to nearly 10%, reaching unprecedented levels.Īnticipating potential interest rate cuts this year, investors may reprice the stock in light of these compelling metrics. The London-based tobacco and nicotine products leader, known for brands like Newport, Velo, Natural American Spirit, Camel, and Vuze, has experienced elevated pressure on its shares in recent months. British American Tobacco Stock ( NYSE:BTI) is currently trading at a near-record-low valuation.

Vuze does not update trackers