A quick post today to note the share price fall that dividend champion British American Tobacco (LON: BATS) (BATS.L) has experienced in the last four months. This is a classic example of a swift change in sentiment.
Between January last year and June this year, British American Tobacco was the stock that everyone wanted to own. The tobacco giant’s share price surged from around 3,750p to over 5,600p, a gain of approximately 50%. A glance at the long-term chart, suggests that the share price got well ahead of itself for a while there. An 18 month 50% share price gain would be a good result for a fast-growing small cap, let alone a slow-moving £108bn market cap consumer defensive stock!
However, since June, sentiment has changed, for several reasons. The stock has drifted downwards, and now trades just above the 4,700p mark.
Rise in dividend yield
Is dividend value beginning to appear? Quite possibly, in my view. British American Tobacco has an outstanding track record of dividend growth, and analysts expect the company to keep hiking its payout at a decent rate in the medium term, as illustrated in the chart below.
Data: Stockopedia, Chart: Dividend Wealth
With a dividend payout of 183.4p expected this year, the forward looking dividend yield has increased from around 3.3% to a more appealing 3.9%, as a result of the share price decline.
I’m going to take a closer look at the investment case next week, and compare the stock to rival Imperial Brands.
Disclosure: Edward Sheldon, CFA owns shares in Imperial Brands.
This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.