With a 10% dividend yield, should this be the first FTSE 100 stock I buy in 2024?

We’re beginning a brand new 12 months, which suggests many people are planning forward for our FTSE 100 investments.

The difficulty is, I can’t bear in mind a begin to a 12 months once we’ve been extra spoiled for alternative. We had a whole lot of very good low-cost shares to select in 2023. And now, I’d say the inventory market outlook is brighter. But these low-cost shares nonetheless look tremendous low-cost to me.

So what’s this 10% dividend yield? It’s British American Tobacco (LSE: BATS).

Share value down once more

After a surge in 2022, the share value has collapsed once more.

The inventory’s price-to-earnings (P/E) ratio is now right down to a bit over six. For any firm that’s not about to go bust, I reckon that may very well be a steal. So what’s fallacious now?

Properly, forecasts present a little bit of a wobble within the subsequent couple of years. Nothing massive, however only a slight fall in earnings.

Has that spooked the market into considering the inevitable finish of the tobacco trade is a bit nearer now? Possibly.

Not so unhealthy

However I don’t assume I see trigger for alarm. The softer forecast for 2024 comes after what appears like a bumper 12 months in 2023. We should always have these outcomes on 9 February.

And I feel fears for the decline of the trade are overdone. I used to be listening to the identical 10 years in the past, and the years since have introduced extra revenue progress and large dividends.

There’s an moral factor too, and that does concern me — every of us, in fact, must determine on that for ourselves.

However I do like the way in which the agency is placing a lot into new sorts of merchandise. In a December replace, CEO Tadeu Marroco stated: “We now count on New Classes to be broadly breakeven in 2023, two years forward of our unique goal.” That’s spectacular.

Outlook

Actually, the entire thing was massive on this ‘Constructing a Smokeless World’ drive, and the board goals to get 50% of income from non-combustibles by 2035.

It additionally stated: “We are going to proceed to reward shareholders by our sturdy money returns, together with our progressive dividend, and, as soon as the center of our leverage vary is reached, we’ll consider all alternatives to return extra money to our shareholders.“

That bodes properly for the headline 10% dividend yield. Analysts appear to assume it would rise a bit within the subsequent two years too. They’ve it at 11% by 2025.

Backside line

Now, I can’t ignore the chance right here. There’s the long-term threat to the enterprise, even with the shift to new product varieties. Within the time between now and 2035, and that fifty% income intention, who is aware of what would possibly occur?

I additionally see a good likelihood we may very well be in for a protracted spell of weak British American share costs, by market fears. That P/E of six may very well be right here for a while… and even fall.

However the 10% dividend does look good to me. I put this in my prime 5 FTSE 100 candidates.