It’s been a positive year thus far for investors in British American Tobacco (LSE: BATS) (NYSE: BTI.US) , with one of the world’s largest listed tobacco companies delivering share price gains of 6%, while the FTSE 100 (FTSEINDICES: ^FTSE) is currently down 0.5% over the same time period. Indeed, the long-term future of British American Tobacco seems bright and, as such, it could make a positive contribution to your mortgage repayments. Here’s why.
E-Cigarettes
Unlike sector peers such as Philip Morris, British American Tobacco has been at the forefront of the e-cigarette revolution. Indeed, its Vype brand has been on sale for over a year and the company has reported encouraging demand for its new product. Although sales numbers are likely to be considerably smaller than those of traditional tobacco products for some time to come, e-cigarettes remain a growing industry that is already worth $1 billion worldwide. While fragmented at present, British American Tobacco looks well placed to gain a foothold in the industry and to begin developing the same levels of customer loyalty and brand loyalty that are present with its tobacco brands.
Growth Potential
As well as the longer-term growth potential from e-cigarettes, British American Tobacco’s shorter term prospects are also bright. For instance, it is forecast to increase earnings per share (EPS) by 8% next year, which is ahead of the wider index’s expected growth rate. Indeed, as well as growth potential, British American Tobacco also offers a resilient and stable earnings profile that has seen profit grow in each of the last five years. This means that, come economic rain or shine, British American Tobacco should be able to increase its bottom line at a brisk pace.
Looking Ahead
Certainly, smoking is becoming less popular in developed nations, and regulations are becoming tighter all over the world in terms of tobacco advertising and smoking in public. Furthermore, counterfeiting continues to be a thorn in the sides of tobacco companies such as British American Tobacco. However, with world population growth continuing to be strong, the reality is that the absolute number of smokers across the world is likely to increase in the long run. This means that there should continue to be a high demand for the product, with e-cigarettes also having huge long-term potential, too.
Although it trades on a price to earnings (P/E) ratio of 15.9 (versus just 13.5 for the FTSE 100), British American Tobacco offers impressive and stable long-term growth potential. As such, it seems a price that is very much worth paying and, with a yield of 4.2%, British American Tobacco could make a positive contribution to your mortgage payments.