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Like many buyers, I recognize a great blue-chip revenue share tucked away in my portfolio, quietly producing passive revenue streams yr after yr. One FTSE 100 share I personal has a stellar observe file relating to dividends.
Might it’s the perfect FTSE 100 share for an revenue investor to think about?
Excessive yield however a blended share worth observe file
The share in query is British American Tobacco (LSE: BATS). Its dividend yield stands at 7.5%.
That is a long way from being the very best yield within the FTSE 100 index. Phoenix Group (LSE: PHNX) yields 9.2% and this week introduced one other improve in its annual dividend per share.
Nonetheless, British American’s yield places it among the many higher-yielding shares within the index even when it’s not high of the board. At a 7.5% yield, £20k invested at the moment would hopefully earn an investor £1,500 in passive revenue yearly.
Excellent observe file of dividend progress
In actuality, the passive revenue could possibly be even greater than £1,500 every year.
British American has grown its dividend per share yearly for many years. It has dedicated to maintain doing so. As dividends are key to the funding case, I believe the board sees this progressive dividend coverage as being of main significance.
A couple of different FTSE 100 members, equivalent to Diageo and Spirax, have longer streaks of annual dividend progress. However, once more, British American is among the many index’s best-performing shares on this metric. Phoenix, by the way, has grown its dividend over every of the previous couple of years, however reduce it lower than a decade in the past.
Combined long-term revenue outlook
No dividend is ever assured to final.
Whereas British American’s observe file of standard annual raises is spectacular, it’s not essentially indicative of what to anticipate in future.
The enterprise is very money generative. British American owns premium manufacturers like Fortunate Strike that give it pricing energy. The addictive nature of nicotine additionally implies that British American has pricing energy. It has different strengths too, together with a worldwide distribution community.
However there’s a huge caveat right here – cigarette demand is declining in lots of markets. Whereas non-cigarette merchandise like vapes might assist British American offset that to some extent, the long-term quantity outlook stays unclear – as does the query of whether or not revenue margins can come something near, not to mention match, these of cigarettes.
An revenue share to think about, with dangers
That issues as a result of it might affect money flows on the FTSE 100 agency.
If that occurs, it might imply the dividend comes beneath assessment. Rival Imperial Manufacturers slashed its payout per share in 2020. British American might but be pressured to do the identical sooner or later in future.
So, whereas its yield and file of dividend progress put it within the high tier of FTSE 100 dividend shares so far as I’m involved, there are vital dangers right here.
Primarily based on that, I don’t suppose that British American is certainly the finest dividend share within the FTSE 100.
Probably the greatest? Possibly.
I do see vital sights. I proceed to see this as a share income-focussed buyers ought to think about.
