1 Spectacular Dividend Stock With a Yield Near 10% to Buy for the Second Half of 2024

The market has been booming since the beginning of 2023. S&P 500 The index posted a total return level of 48% during this period, pushing the index’s price-to-earnings ratio (Price-earnings ratio) a ratio of almost 29.

This is much higher than the long-term market average, with many popular stocks such as Apple, NvidiaAnd Microsoft Stocks are trading at even higher multiples. High earnings ratios likely mean high risks for high future returns. You have to be optimistic to believe that the next 10 years of returns will resemble the last 10 years for the S&P 500.

So what should investors do when faced with so many stocks that look expensive? I have one dividend stock that looks extremely attractive relative to the market: British American Tobacco (NYSE: BTI). The company has a dividend yield of close to 10% and a very low earnings ratio. Unlike most stocks, the market is extremely pessimistic about the company’s prospects at present.

Here’s why you should buy British American Tobacco stock in the second half of 2024.

Declining unit volumes, constant price increases

Investors have been turning away from tobacco companies due to the accelerated decline in sales volumes of traditional cigarettes. British American Tobacco has recorded an 8% decline in global cigarette sales volumes in 2023.

While these numbers are concerning, investors should keep in mind that tobacco companies are dealing with the consequences of conflicts around the world, which is exacerbating volume numbers. On an organic basis, British American Tobacco reported a 5.3% decline in volume globally.

The company is able to counteract volume declines with consistent price increases on cigarettes. That is why revenue from combustible products declined by only 4% in 2023 and by a meager 0.8% if we exclude currency fluctuations, which the company cannot control.

Taking the bigger picture into account, it is clear that British American Tobacco’s cigarette business is doing well despite a sharp decline in volumes. While it is not a hyper-growth business, its price increases have helped stabilise consolidated turnover over the last five years.

And that’s not the company’s only product segment.

Growth of pouches and vaping

Outside of cigarettes, British American Tobacco has invested in new, less harmful nicotine products. The most prominent are the Velo nicotine pouch brand and the Vuse e-cigarette brand.

Organic vaping revenue grew 27%, and oral nicotine pouches grew 39% in 2023. Together, these new categories are approaching $5 billion in annual sales and achieved segment-level profitability last year.

In the coming years, this segment will finally start to contribute to the company’s overall profits and free cash flow. It remains much smaller than the company’s cigarette business, which generates more than $20 billion in annual sales worldwide, but e-cigarettes and pouches are new categories that can help replace existing cash flows and build a sustainable British American Tobacco over the long term.

BTI Dividend Per Share Chart (TTM)

A sustainable dividend of 10%…

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