3 Things to Love About British American Tobacco
LONDON -- There are things to love and loathe about most companies. Today, I'm going to tell you about three things to love about British American Tobacco .
I'll also be asking whether these positive factors make the FTSE 100's biggest tobacco company a good investment today.
British American Tobacco (BAT) has been a top FTSE 100 long-term performer. The company has delivered shareholders an annualized return of 21% over the last 10 years compared with 9% for the market as a whole. The five-year figures are 17% and 6%, respectively.
The company, which counts Dunhill, Kent, Lucky Strike, and Pall Mall among its top-selling brands, has continued to thrive through litigation and regulation scares, rewarding shareholders year after year.
The manner in which BAT has rewarded shareholders is as impressive as the magnitude of the returns.
Companies in so-called "defensive" sectors generally cope better than companies in "cyclical" sectors in a recessionary environment, because they supply things people can't do without. Tobacco is a defensive company par excellence.
Between October 2007 and March 2009 -- less than 18 months -- the FTSE 100 dived a whopping 48%. Over the same period, BAT's shares fell just 4%, giving shareholders no cause to lose any sleep.
BAT is the most international tobacco company in the world. As the table below shows, revenues are divided pretty equally across four regions that cover the entire globe.
Revenue (billion pounds)
Proportion of total revenue (%)
Eastern Europe, Middle East, and Africa
BAT's global reach means it has substantial exposure to fast-growing developing markets. These give the company a powerful engine to drive future shareholder returns.
A good investment?
BAT has been a huge success for long-term investors. Perhaps, tobacco will one day be legislated out of existence, but I find it hard to see that happening for many decades, if at all.
The shares are currently changing hands for around 3,700 pence, which represents a bit over 16 times forecast earnings for 2013. The prospective dividend yield is 4%. Despite the share price being at an all-time high, the earnings multiple is in line with the market average, and the yield is superior.
BAT's long-term record of delivering for shareholders, and analyst forecasts of continuing double-digit earnings growth, suggest that, while the shares aren't in the bargain basement, they're not altogether unreasonably priced.
One savvy investor who has ridden the BAT success steed -- and is still aboard -- is City legend Neil Woodford, whose funds have outperformed the market for almost a quarter of a century. You may be interested to read about eight of the investing wizard's favorite blue chips in this free and exclusive Motley Fool report.
The article 3 Things to Love About British American Tobacco originally appeared on Fool.com.G.A. Chester does not own any shares mentioned in this article. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.