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Like many buyers, I admire a great blue-chip earnings share tucked away in my portfolio, quietly producing passive earnings streams 12 months after 12 months. One FTSE 100 share I personal has a stellar monitor report in terms of dividends.
Might it’s the most effective FTSE 100 share for an earnings investor to think about?
Excessive yield however a combined share value monitor report
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 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 isn’t prime of the board. At a 7.5% yield, £20k invested at this time would hopefully earn an investor £1,500 in passive earnings yearly.
Excellent monitor report of dividend progress
In actuality, the passive earnings 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.
Just a few different FTSE 100 members, similar 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 few years, however lower it lower than a decade in the past.
Combined long-term earnings outlook
No dividend is ever assured to final.
Whereas British American’s monitor report of standard annual raises is spectacular, it isn’t essentially indicative of what to anticipate in future.
The enterprise is extremely 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 world distribution community.
However there’s a huge caveat right here – cigarette demand is declining in lots of markets. Whereas non-cigarette merchandise like vapes could 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 earnings share to think about, with dangers
That issues as a result of it may impression money flows on the FTSE 100 agency.
If that occurs, it may imply the dividend comes below evaluation. Rival Imperial Manufacturers slashed its payout per share in 2020. British American may but be pressured to do the identical in some unspecified time in the future in future.
So, whereas its yield and report of dividend progress put it within the prime tier of FTSE 100 dividend shares so far as I’m involved, there are vital dangers right here.
Based mostly on that, I don’t suppose that British American is unquestionably the greatest 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.
