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British American Tobacco (LSE: BATS) shares have been offering money rewards to shareholders for years. And that custom continued Thursday (12 February) with a 2% rise within the full-year 2025 dividend to 245p, for a 5.5% yield. The corporate additionally launched a brand new £1.3bn share buyback programme for 2026. That ought to give an additional enhance for future per-share measures like earnings and dividends.
Traders didn’t appear too excited by the outcomes, with the share worth barely transferring in early morning buying and selling. However it’s already surged over 60% prior to now 5 years, lifting the valuation. So perhaps the value is true within the circumstances.
What does the longer term maintain for this long-term FTSE 100 dividend inventory? Let’s have a look.
The ‘S’ phrase
The 12 months introduced an increase in adjusted revenue from operations of two.3%, from an 44% working margin. And on the backside line, adjusted earnings per share (EPS) got here in 3.4% forward of the earlier 12 months. Of explicit curiosity to long-term traders, income progress from New Classes merchandise “accelerated to double-digits in H2,” for a full-year rise of seven%.
CEO Tadeu Marroco mentioned the efficiency “reinforces our confidence in sustainably delivering our mid-term algorithm from 2026.” He added he stays “committed to delivering sustainable shareholder value through robust cash returns,” additionally speaking about “sustainable share buybacks” on high of the brand new £1.3bn plan.
The phrase ‘sustainable’ options prominently on this newest replace. And it actually is vital for the probabilities of BATS shares remaining a gorgeous cash-generative proposition within the years and a long time forward.
Smoke will get in your eyes
Will British American Tobacco be promoting as many cigarettes and different smoking merchandise in 20 years’ time? I actually don’t suppose so — and I doubt many different individuals do. Massive elements of the growing world are nonetheless hooked on the behavior, and that may preserve the income going for a while but. However the world is clearly altering.
That’s why the concentrate on New Classes merchandise is so vital. And in 2025, we noticed 4.7m new prospects for the corporate’s smokeless manufacturers. Which means 34.1m of them now, apparently. However it’s nonetheless a comparatively small proportion.
Smokeless merchandise contributed 18.2% to whole income in 2025, which is certainly encouraging. However it’s pretty sluggish progress, up a really modest 0.7 proportion factors over the earlier 12 months.
Good-value shares?
The adjusted EPS determine of 352p provides BATS shares a trailing price-to-earnings (P/E) ratio of solely 12.5 on the day before today’s shut. However the seemingly low valuation is impacted by internet debt of £30.4bn on the finish of December 2025 (prone to be little modified by the top of 2026). That’s roughly 32% of British American Tobacco’s market cap.
Permitting for the debt pushes the efficient P/E for the enterprise as much as 16.5. Is that good worth for a inventory with a 5.5% dividend yield? I’m constructive on that rating. However is there a security margin to cowl the danger from at this time’s altering market? I’m not so certain there.
I can see why earnings traders like this inventory, and I’m satisfied they’re proper to contemplate it. However the medium-term revenue uncertainty is one purpose I’m trying elsewhere myself.
